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.

The confidence of the dinosaurs

“When the platform changes, the leaders change.”Seth Godin

You’ve seen the same signs I have. The volume of pro se litigation continues to set new records every year, most notably in family law. Do-it-yourself websites for contracts, wills and divorces keep flourishing, with non-lawyer providers like LegalZoom and Rocket Lawyer boasting millions of customers and millions of dollars in venture capital investment. Foreign professionals and sophisticated software are surging onto lawyers’ traditional business turf. These trends and others show every indication of continuing throughout this coming decade.

The overall legal market, despite what you might conclude from all that data, is actually strong and growing. But as Toby Brown has noted, it’s growing with only minimal involvement by or financial gain for lawyers. Market growth is passing us by. Law firms of every size and description, in every jurisdiction, are experiencing flat or declining revenue or profit. This is mainly because lawyers and law firms have proven to be less accessible, more expensive, and less responsive than clients are increasingly willing or able to tolerate, and because those clients are now test-driving alternative options for legal services.

That’s fairly easy to understand. What’s not so easy to understand is why most lawyers haven’t responded to this emerging reality. More and more, month by month, the market is acting in new and unfamiliar ways that don’t follow the traditional script. Yet most of us keep acting as if nothing has really changed, or as if the change that we do perceive is merely minor and fleeting. We choose to ignore the growing evidence of new behavioural patterns among our clients.

The only reason I can think of to explain this is the serene confidence of incumbency. Lawyers still own this market, and we’ve owned it for longer than anyone can remember, a happy fact that we ascribe to our natural superiority. We feel a deep and untroubled assurance of our continued dominance over legal services.

Well, this is a bad time to be an incumbent in the legal marketplace.

If you or your firm or your organization or your model have been riding high in this market for years or decades, then a time of reckoning is at hand. Fundamental changes in the market for legal products and services are driving profound changes in the behaviour of legal service purchasers and other market participants. Those changes are coming to constitute a new environment, a fresh playing field, a new set of rules for legal service providers.

That’s a serious challenge. And it is especially a challenge to the providers and institutions that have long occupied the market’s pole positions — the perennial winners, the default choices, the clubhouse leaders. That is not limited to lawyers and law firms — it’s market-wide.

  • In-house counsel have been trying the patience of their corporate colleagues for years, through their inability to bring predictability, control, and budgetary discipline to the legal risk management function. That patience has run out in many companies, which are turning to procurement professionals to deliver the results the CEO and CFO want. Some corporate counsel have found themselves being “worked around” by their own employers.
  • Courts and judges have served as the ultimate arbiters of private disputes for centuries. But the ongoing, long-term breakdown of the litigation system has generated a host of alternative options for private dispute resolution, from familiar options like mediation and arbitration to newer entrants like online DR and game-theory-based dispute elimination. Courts are well on their way to becoming a largely irrelevant niche player in this market, their time consumed by cranks and corporations.
  • Law schools, for the 150+ years following the legal profession’s post-apprentice period, served as the only route into a legal career. This market monopoly, combined with academia’s natural inclination towards inertia, has made schools fanatically resistant to change. But the collapse of the traditional lawyer employment route is hitting schools hard; the 25% drop in applicants to US law schools over the past two years is just the leading indicator of trouble.
  • Legal publishers saw this trend coming sooner than most: the evisceration of print publishing by online technology forced these companies to begin expanding into areas like online research and knowledge management. But even with that head start, giants like Lexis and West face challenges from new companies like Bloomberg Law, new collectives like Legal Information Institutes, and down the road, consumer information leviathans like Google.
  • Bar associations were integral to the development of an organized profession and collective lawyer activity. But like other aging non-profits, many became more fixated on their own interests than on those of their members, and they came to prioritize the interests of their most influential volunteers. Worse, niche competitors began replicating their core offerings — networking, education, content — leaving bar associations struggling for purpose and identity.

It bears repeating: these are the winners we’re talking about. These are the companies, organizations and professionals that defeated other contenders over the course of many decades by developing models that delivered top performance in their respective environments. They’ve been around for so long that we (and, dangerously, perhaps they) assume that their dominance is natural. But it’s not; it’s environmental. They adapted best to their prevailing circumstances, and they did it so well and so completely that now, as their natural habitat begins to break down, they’re finding it harder to breathe.

These front-runners are highly vulnerable precisely by virtue of their front-running status. Their infrastructure, business culture and operating assumptions are inextricably linked to the status quo prevalent during their formative years; they flourished by adapting to these first environments they encountered. As those environments change, incumbents must find their way in a world for which they are increasingly not suited. This is the fundamental, and most frightening, insight that Clayton Christensen delivers in The Innovator’s Dilemma: industry leaders are regularly overthrown because their operating models could not adapt to their industry’s inevitable evolutions and innovations.

If you are or belong to a successful legal market participant today, it is most likely the case that your organization adapted to (and perhaps even helped bring about) the ideal environment for its success. What will you do when that environment changes?

  • If your entire business model is premised on pricing your services and paying your lawyers according to time spent on tasks, what do you do when clients stop dealing in that currency and demand a new one?
  • If your sole stock in trade is students who spend three years receiving basic law primers, what do you when both your inventory and its purchasers require a radically different product?
  • If your core purpose is to resolve private disputes, what do you do when new providers deliver the same outcomes much faster and much more cheaply than you could hope to manage?

Dinosaurs, to borrow a popular analogy often used to describe traditional lawyers, dominated the Mesozoic Era because they were perfectly suited to the world as they found it. Then the asteroid hit. But the asteroid didn’t kill every dinosaur in the world upon impact — it couldn’t; it wasn’t that big. What the asteroid did was cause extreme disruption to the environment in which the dinosaurs had evolved. The world around them changed, and the dinosaurs couldn’t adjust, and they disappeared.

What do you suppose is going to happen next in the law?

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 high price of poor pricing

The cynic knows the price of everything and the value of nothing. The average lawyer, by contrast, knows the value of everything but the price of nothing.

You’ve got to admit there’s something to that. We lawyers go on at great length about the value we deliver to our clients, the signal importance of having a lawyer on the case, the critical knowledge and skills we bring to the table, etc. A lawyer will leave his client in no doubt about the value he supplies. But that same lawyer, in almost every case, will be unable to assign a price to that value.

We can provide rates, sure — but rates aren’t prices, in the same way that speed is not distance unless you add time. Unless the matter is utterly routine and predictable, most lawyers cannot or will not answer the most straightforward client question in the world: “How much will I pay you for this?” We panic. We freeze up. We die a little. We resort to myths and excuses, and as we natter on, we see the client’s face fall….

We, as a profession, are terrible at pricing. Awful. Lost. Clueless. Atrocious. Self-immolatory. I could go on, but only to hammer home the point, so that we can come to accept it more easily. The shoe fits, so we might as well wear it. We’re useless at pricing — and that’s okay. It’s understandable. No one ever trained us in pricing, either in law school or during our bar admissions procedure. Even if a senior lawyer took us under her wing when we first started out, we only learned the same scattershot substitutes for pricing that lawyers have been relying upon for decades.

This was never a problem before, because we were the only people serving the legal market and clients had to accept our services on our terms. It’s a problem now, and we need to solve it. Studies from multiple industries confirm that pricing is absolutely critical to profitability.

Here’s what The Deloitte Review says about the subject in an article titled “The Price of Pricing Effectiveness”:

Great companies do pricing very well. [T]he link between pricing and profitability recurs both anecdotally and in more detailed analysis. One study suggests that pricing has two to four times the potential to influence profitability relative to other business levers. Companies that actively pursue pricing as an important part of their strategy typically outperform industry peers on several financial metrics. …

While price setting is an essential piece of the pricing puzzle, the overall discipline of effective price management concerns itself with managing transaction-level profitability, which requires capabilities in pricing strategy, execution, analytics and governance. The discipline also requires coordination across many functions including sales, marketing, finance, product development and customer service.

Add to that these excerpts from an article in the MIT Sloan Management Review, “Is It Time to Rethink Your Pricing Strategy?” (HT to Andrew Terrett of Borden Ladner Gervais LLP, who pointed me to the article):

[N]umerous studies have confirmed that pricing has a substantial and immediate effect on company profitability. Studies have shown that small variations in price can raise or lower profitability by as much as 20% or 50%. …

[S]uperior pricing is almost always based on skill. The companies we found that had achieved better pricing all had top managers who championed the development of skills in price setting (price orientation) and price getting (price realization). … Without managerial engagement, companies typically use historical heuristics, such as cost information, to set prices and yield too much pricing authority to the sales force.

Does that last sentence remind you of any legal organizations of your acquaintance? It should. Consultant Richard Burcher of Validatum describes this perfectly in his recent post, “Abdication of Pricing Responsibility: Whose Money Is It Anyway?”

How many businesses do you know where the employees are given a broad mandate to set the price of the products or services?  Would you invest as a shareholder in a business where the profitability fluctuated at the whim of often mid-level or even junior staff?

And yet this is what passes for business as usual in many law firms.  It’s not that realization rates, utilization rates, and other traditional law firm management metrics and wisdom aren’t important, but I see firms devoting time, effort and cost to these strategies, plugging pin-prick holes in the revenue bucket when there is a hole the size of a fist staring them in the face; the wrong people making pricing decisions.

I’ve come to believe that our failure to price well, as a profession, is our single greatest vulnerability in the new legal market. Our competitors, many of whom are not lawyers, can and do set a reliable price on their legal services. They can do this because they possess several things that most lawyers and law firms lack:

  1. knowledge of and control over their own costs of doing business, coupled with:
  2. systems that minimize or eliminate variables that generate cost instability, producing:
  3. a sophisticated understanding of their internal profitability, which combines with:
  4. enforceable, enterprise-wide discipline over the setting of price, made possible by:
  5. decoupling individual compensation from individual billing, dovetailing with:
  6. an appreciation of clients’ circumstances and the value of legal services thereto, all of it supported by:
  7. the confidence to accept short-term losses and fluctuations in exchange for long-term sustainable profit.

If you want to institute truly game-changing pricing in your law firm, you need to start by addressing these seven missing elements. Some will be easier to fix than others, and some will be excruciatingly difficult (4 and 5 in particular). But these are the tools with which your rivals, old and new, are attacking your hold on your clients and your share of the market. If you don’t have enough of these tools, or any of them, then it’s not going to be a fair fight, or a particularly long one.

Price, ultimately, is about knowing and meeting our clients’ needs and expectations in the context of our business goals and our competitive environment. What’s it worth to us? What’s it worth to them? Answer these questions and adopt those seven tools, and you’ll start to master the art of pricing legal services.

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.

Generation eXit

This, I’m reasonably certain, is the first Law21 post to start with: Spoiler Warning. It’s only fair to advise that if you haven’t seen the Joss Whedon horror thriller The Cabin In The Woods, and you plan to do so, then you should skip the rest of this post, because I’m about to give away the plot and the ending. (Mind you, I haven’t seen it either — horror’s not my thing, so I went and read a complete summary of the movie online. Yes, that’s cheating.)

The Cabin In The Woods is a darkly comic post-modern take on the traditional slasher film, in which attractive young people in a remote location are hunted down and killed by a mysterious or supernatural predator. The twist is that this longstanding horror trope actually turns out to be a worldwide government program in which real monsters that would otherwise devour humanity, familiar to us through legend, are kept at bay by offering up young sacrificial victims in an ancient rite. Things go wrong, however, and by the end of the movie, the program has failed and the monsters are breaking loose. The two surviving teenagers are told that unless they agree to be ritually sacrificed as originally intended, the pact with the monsters will be broken and the whole world will be destroyed.

Here what’s really interesting: the teenagers, after trading swift glances, respond: No. If this is what is required to save the world, they reason, then the world isn’t worth saving. And, they might have added: if we need to die because of the bad bargains you made to stay alive, then we’re bringing you down with us.

The Cabin In The Woods is an original take on horror movies; but if you view it through a generational lens, it becomes highly illuminating in other ways. An older generation that preserves its safety and well-being by sacrificing its children’s future is a concept with a lot of traction for Millennials right now, and the film did extremely brisk business with young moviegoers (as did The Hunger Games and Snow White And The Huntsman, other movies in which the old survive only at the expense of the young).

Unemployed and underemployed in the highest numbers in recent memory, Millennials are doubly embittered because the generation that raised them to follow their dreams and believe anything was possible is the same generation that has left their playing field in ruins. Millennials have no doubt whatsoever about who’s to blame for their predicament. Many Boomers might find their reasoning defective or their conclusion unfair; Generation Y, like its favourite meme the honey badger, don’t care (if you’re not familiar with the link, be advised that it’s rather NSFW).

For an especially acute rendering of this generational bitterness, read this acidic manifesto from a Millennial to Boomers and Gen-Xers alike: “Quit Telling Us We’re Not Special — We Know We’re Not.” You don’t have to agree with the entire blistering arsenal unleashed in that article. But I would still suggest that you give it a serious look — and specifically, that you note the labels used by older generations to describe this young one. They strongly echo those that established members of the legal profession like to rain down on the most recent cohort of new lawyers: Lazy. Pampered. Entitled. Unwilling To Work Hard. If you borrowed heavily to obtain an impotent law degree, You Should Have Known Better. If you can’t find a job, it’s because You Haven’t Tried Hard Enough. Sound familiar?

I don’t know if you’ve spoken recently with many young lawyers, especially the ones struggling to find legal work (45% of the American class of 2010, for example). But they’ve heard those sentiments from veteran lawyers, they’ve seen how the legal profession is treating its young, and they are extremely unhappy about the profession they longed to join but that has no place for them.

That’s got me kind of worried. I’m concerned not just that we’re about to lose part of this generation of lawyers, but also that we might not recover that loss in the future. We’re watching an economic scalpel carve a permanent chunk out of the profession’s demographic profile several years wide, which is all bad enough. But in the process, we’re also risking our profession’s reputation with future cohorts of intelligent, creative and caring would-be lawyers, those who were once drawn to a legal career but who might now look elsewhere. We could be poisoning our own brand.

The statistical evidence of unprecedented unemployment among heavily indebted new lawyers has been widely documented; less well-publicized has been the nearly one-quarter drop in applicants to US law schools in the past two years. That’s a problem for the American legal profession, because that’s its talent pool for the years 2020-2060, and a drop like that is a sign of potential drought. I’m not aware of similarly acute declines in other countries’ law school application rates, but the same threat exists and could easily materialize.

That rate of decline can’t and won’t be sustained, of course; but I also don’t think it’s going to reverse and return to previous levels all of a sudden. In a fully connected world where aspiring professionals have extraordinary access to information about career prospects in various fields, hard facts about legal jobs are easier than ever to come by. Law’s reputation as a relatively safe and remunerative career, one in which new entrants could expect to be helped out by older colleagues and brought along by law firms, has been damaged. The bloom is coming off our rose.

This is an issue that goes beyond individual law firms’ profits or even regulatory concerns; this is about law’s ability to be competitive with other careers. We can argue all day about what constitutes “the best and the brightest” of each new generation; but however you define the best and brightest, we want them in the law. We want the legal profession to attract and retain individuals of the highest intellectual, creative and ethical character. We want the cream of every year’s crop. We’ve succeeded in attracting those candidates for many years, including over this past decade, and good for us. But we’re currently failing to retain those lawyers, to shelter them in difficult times, or to help them stay the course. And we’re sending a clear signal to those who might follow this unlucky generation: if you struggle starting out in the law, and you very well might, you’ll be on your own.

Many people will still strive to be lawyers, of course — I can’t foresee any future in which hardly anyone wants to practise law. But many other people who would normally pursue the law will have second thoughts, and they will act on those misgivings. They’ll look for different careers, ones without reputations for unstable employers, brutal facetime expectations, and widespread unhappiness. They’ll be like star athletes who could choose any sport — but who will look at short careers, excruciating injuries, debilitating concussions, and institutional apathy and decide that they can do better than football. Law does not want to become the NFL of professions — but that’s where we might be headed.

You could raise any number of reasonable objections to my concerns. Most law schools experiencing drops in applications can simply dig deeper into their waiting lists. Every profession goes through down cycles: who would have wanted to be an accountant in the wake of Andersen Consulting? And wasn’t I saying just the other day that the legal profession is shrinking and we won’t need so many lawyers in future anyway?

All true. But law schools with fewer applicants find that the quality of candidates gets shallower along with the pool itself. Accounting’s image is still bruised from the scandals of the late 1990s, and accounting hasn’t relied on the prestige factor as heavily as law. And while yes, I don’t think we’ll have as many lawyer “jobs” to fill in future, there’ll still be a great need for lawyer “employment,” and we’ll still need good people to fill both kinds of roles.

More important, I think, is that we want law to continue to be a destination career, one to which as many people as possible aspire. It’s been our incredibly good fortune, reinforced by our commendable historical efforts, to have maintained a strong professional brand for many decades. But no prior decade has been like this most recent one, and no living generation of lawyers has gone through what this one is experiencing. My concern is that they’re not going to keep going through it much longer: they’ll give up on the law and encourage others not to make their “mistakes.” (That process is already well underway: Google “law school scam” for the evidence.)

The end of The Cabin In The Woods stays with me because of the teenagers’ choice: rather than help prolong a world whose rules require their sacrifice, they simply decide to quit the game altogether (dooming the world in the process). This is the first generation of lawyers that might decide, even in part, to do the same: simply exit the profession altogether, give up on the game as not worth the candle.

We’ve long assumed there’ll always be more lawyers coming through the system, always more young minds willing to pay the price of admission. What if that supply slows down or stalls out? What arguments could we muster to coax them back, or their younger brothers and sisters, or their children? Having shown our willingness and ability to sacrifice them, what could we possibly have to say to them after that?

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.


Too big to succeed

(Note: This article is reprinted with permission from the July 10, 2012 issue of The Legal Intelligencer. © 2012 ALM Media Properties, LLC. Further duplication without permission is prohibited.  All rights reserved.)

What do we talk about when we talk about “BigLaw”? Let’s be honest: we’re not actually discussing specific law firms at all. We’re really talking about an idea, a model, an approach to the market. “BigLaw” is shorthand for a particular type of law firm, one that employs hundreds of lawyers charging exceptionally high fees to deliver a wide range of standard commercial and dispute resolution services to corporate and institutional clients.

Calling this model “BigLaw,” however, oversimplifies things. These are complex, multi-dimensional entities, and it’s neither accurate nor helpful to describe them by size alone. More to the point, in the months and years to come, the “Big” part of that name will become less relevant. Many of these firms are actually much larger than they need to be — and they’re about to get a whole lot smaller.

Here is an uncomfortable but increasingly unavoidable fact: most large law firms today are overlawyered:

  • They hired too many associates, back when associates were a widely traveled road to higher leverage and greater profits, with no clear plan for their long-term use or development.
  • They converted too many of those associates into oxymoronic “non-equity partners,” bestowing the prestige of partnership without adding the demands and sacrifices the title requires.
  • They promoted or laterally acquired too many equity partners, failing to grasp that partnership is best restricted to exceptional rainmakers and extraordinary managers of people or processes.

In the result, big firms now find themselves misaligned with the emerging realities of the modern legal marketplace. The word that best describes most of these firms is “bloated” — that sickly feeling that comes from indulging too long at the holiday banquet. The holidays lasted a long time for large law firms, but they’re ending now.

The staff and associate layoffs at big firms in the wake of the financial crisis were the first steps in this direction. The growing number of partner de-equitizations is the next stage, and in many firms, that process is just getting started. But it would be wrong to describe those cuts as strategic: for the most part, they were short-term, knee-jerk responses to real or anticipated drops in partner profitability.

What we’re about to see are very similar outcomes driven by very different considerations. Big firms are preparing to go on severe lawyer diets not to fend off dreaded declines in PPP, but because they’re simply not going to need as many lawyers as they once did.

It started, as most market trends do, with the customer. The financial crisis and recession offered corporate clients numerous opportunities to take a stronger hand in their relationships with big law firms, opportunities that they’ve largely squandered. But the law departments at least managed to push back on big firms’ routine fee increases and persuaded their outside counsel to pay more attention to cost control and legal project management.

However reluctantly, big firms did start paying attention to all these issues. And when they did, they rapidly came to recognize a growing array of options for performing legal work that don’t require full-time salaried lawyers.

Technology: Ron Friedmann has assembled this eye-opening list of large firms (including gilded names such as Skadden Arps, Sullivan & Cromwell, Linklaters, and Clifford Chance) that have created online legal services in areas ranging from Dodd-Frank and derivatives to trademark, privacy, and environmental law. These web-based, firm-exclusive solutions are complemented by a growing number of private-sector providers such as Neota Logic, kiiac, Koncision and Fair Outcomes, which all promise to disrupt traditional methods for accomplishing legal tasks (and the traditional workforce that has performed them).

Outsourcing: The initial entrants to this category were legal process outsourcing (LPO) companies, usually based in India, that promised high-quality legal work for much less than large law firms were charging. Many of these companies continue to thrive, such as Pangea3, famously purchased a couple of years ago by Thomson Reuters. But LPOs have since been overtaken in the profession’s imagination by other outsourcing options, including Axiom Law, The Practical Law Company, Novus Law, and Project Counsel, all offering entry-level legal tasks and managed legal services at much lower prices.

Insourcing: You might more accurately call this a market condition imposed upon large firms by their corporate clients, rather than a new option for the firms to work differently. But the practical effect is the same: in-house law departments are choosing to keep more work, especially routine work, within their offices rather than farming it to outside firms. This makes big firms even less inclined to maintain large cohorts of associates, especially newer lawyers unqualified to do much beyond basic tasks. For firms that depended heavily on that routine work to bolster the bottom line, the impact on revenue is even more pronounced.

Every day, more large firms across the U.S. and the U.K. avail themselves of these options, sending more work outside their walls, beyond the border, or into software programs, making full-time salaried lawyers increasingly unnecessary. The ultimate outcome isn’t hard to foresee: large law firms are going to get smaller.

Less work for lawyers isn’t a theory or a prediction: it’s already a fact. In the U.K., many large firms continue to announce new rounds of layoffs each week. Job losses in the U.S. legal sector have stabilized for now, but overall employment numbers are still below pre-recession levels. Moreover, the ABA reported recently that just 55% of 2011’s graduating law class had found full-time, long-term jobs that require bar passage nine months after they graduated.

Would-be lawyers have already begun to take the hint: the Law School Admissions Council reports that the number of law school applicants dropped 15.6% last year and is down 24.1% over the past two years. That might go some way to explaining why 10 law schools are planning to reduce the size of their first-year classes.

If you think this looks like the beginning of a shrinking legal profession, you’re probably right. But at the very least, it’s a parallel trend traveling in the same direction and leading to essentially the same destination: the BigLaw lawyer employment engine is revving down.

Mergers, even among global giants, aren’t going to change the fact that fewer lawyers will be required to perform legal tasks. Massive as they might be, newly merged super-firms will still be smaller than they would have been even a few years ago. We might even start to see law firm mergers more closely resemble mergers in the corporate world: amalgamations undertaken chiefly to increase efficiency and productivity, frequently followed by mass employee redundancies and the closing of surplus offices.

The lesson for law firms is this: Size, measured in the number of lawyers at least, is not an end in itself. Big is fine; needlessly big is not. There are new and often better ways for firms to deliver legal services that don’t require the contributions of a full-time lawyer. That will become clear to large firms in the coming months and years, and it will have devastating short-term consequences for lawyer employment as the impact is fully realized.

How can law firms go about this streamlining process? Here are five strategies:

1. Rethink the purpose of associates. Leverage alone won’t be a good enough reason to maintain vast grazing herds of associates, not with lower-cost options available on the market and with fixed fees taking more work from the billable hour. In the same way, the inefficient and arbitrary “tournament” approach to grooming future partners through attrition has no place in a modern enterprise. The primary purpose of associates will (once again) become to create future partners and leaders — and firms will not require nearly so many associates for that.

2. Scale back the accumulation of partners. Dewey & LeBoeuf presents a tragic portrait of a firm that engaged in the undisciplined and irresponsible pursuit of ever more partners at ever higher remuneration with no long-term plan. Smart firms will come to demand the highest standards for free-agent acquisitions, applying to potential new “rainmakers” the fundamental business truth that past performance is no predictor of future success. As a general rule, most big firms are over-partnered to a far greater degree than they are over-associated.

3. Invest seriously in low-cost performance options. Class and cultural blinders are the primary obstacles to big firms’ acceptance that excellent work can be produced outside their hallowed halls. Contract lawyers in smaller centers and LPO lawyers in foreign jurisdictions are much smarter and harder-working than most firms have been willing to believe. Automated contract programs, expert knowledge applications and innovative dispute elimination services are exceptionally powerful and reliable. Pedigree is overrated.

4. Re-engineer workflow. The first three steps lead inevitably to the fourth, which in some ways is the most important. Large firms that insist on producing legal services as if it were 1992 will be unable to give up their addiction to having armies of lawyers on hand. Smart firms will create templates and processes to regulate their systems and activities. They’ll implement legal project management as a philosophy, not just a cost-management measure. They’ll change how they work, and thereby change the nature of the resources needed to perform it.

5. Partner with in-house clients. There’s no point in a large firm trying to transform itself in splendid isolation from its paying customers. In-house law departments are dying to hear that their outside counsel are committed to practicing law differently and more effectively. These clients are going to keep more work for themselves regardless; the firm might as well be part of the process, perhaps through long-term lawyer secondments or client-specific online applications. Strong client ties are far more valuable than adding yet another body at yet another desk.

Clients already know that sheer size is no substitute for value or effectiveness in a law firm. Nor, law firms are finally coming to realize, is it a substitute for being excellent or profitable. The legal profession’s fetish about size is drawing to a close, thanks to advances in technology and alternative resources for legal proficiency. It’ll soon be time to find another word for “BigLaw” — it’s just not about size anymore.

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 dying cult of the corner partner

Let’s start with an odd fact: the self-interest of a law firm is fundamentally opposed to the self-interest of its most powerful partners.

Here’s how I see it. The more influence a lawyer wields over a given client, the more stature, leverage and tactical advantage that lawyer gains within his or her firm; these benefits grow in proportion to the size of the client and its strategic importance to the firm. This partner’s influence naturally tends to undermine the firm’s security: the partner could bolt at any time, depriving the firm not only of a key client but also of the partner’s substantial contribution to the firm’s average PPP, which in this environment might actually be the greater threat. This creates a dysfunction in the relationship between a firm and its best lawyers: the more the lawyer succeeds, the less control the law firm has over its own destiny.

The firm recognizes this fact, of course, and it takes steps to mitigate the inherent risks of a powerful partner. It invests heavily in firm-wide marketing and “brand,” to ensure that its individual stars don’t shine more brightly than their corporate constellation. More importantly, it strives to create teams for critical clients, to attach multiple lawyers to these clients and to increase the “stickiness” of the relationships. I’ve written elsewhere that if you have an irreplaceable employee, your goal as a manager is to make that employee replaceable.

The partner, no fool either, recognizes these attempts and does everything possible to undermine them, most notably by hoarding the most significant work and key client interactions and by keeping more junior partners at a safe distance (tactics that dovetail nicely with lawyers’ natural proclivities anyway). This power struggle takes place every day in almost every sizable firm, often with neither side consciously realizing what it’s doing and why.

That struggle, however, usually leads to a long-foregone conclusion: the partner wins. And that’s mostly because of one of the legal industry’s most durable and reliable mantras: “Clients hire the lawyer, not the firm.”

The lawyer and the firm are always fighting over who gets to take the client to the dance; but in the end, the client invariably chooses the lawyer for its date. It’s not an entirely irrational choice. As I’ve catalogued before, law firms traditionally have been unable to guarantee the consistency of their service delivery, the reliability of their systems, or even the quality of their lawyers. And powerful partners are very good at creating industrial-strength personal bonds with clients. But there’s something else, something more pernicious, at work here: there’s the cult of the corner partner.

There is no more powerful person in a law firm (arguably, in the legal market itself) than the corner partner. You know the one I mean: extraordinary skills, extensive connections, huge book of business, intimidating presence, and (to put it politely) an outsized personality. Corner partners don’t have to occupy actual corner offices, of course: what distinguishes them is not their dual window views, but their status (real or perceived) as the sine qua non of the firm’s profitability and prestige.

No major firm decisions are taken without the input or acquiescence of corner partners; no new initiatives proceed without their approval and no member of the firm, up to and including the managing partner, survives a serious conflict with them. We sometimes call them “rainmakers,” but that sells them short: they’re more like the patriarchal (or matriarchal) overlords of the firm. Some are benevolent overlords, using their influence to ensure the long-term prosperity of the firm and its members; I don’t think it’s overly cynical to call such partners the exceptions rather than the rule.

Everyone buys into the cult of the corner partner, and this is nowhere more evident than in law firms’ single-minded preoccupation with, and frenzied pursuit of, lateral partner hires. Subscribing fully to the “Clients hire the lawyer” mantra, law firms clamber over one another in the mad scramble to poach partners with big books of business in key practices or industries, invariably with escalating promises of more and more money.

If its efforts are successful, the law firm trumpets its poaching expedition in a flurry of statements and press releases (in which the new corner partner can be expected to speak glowingly about the advantages of the new firm’s “larger platform”). This has been the primary growth strategy for hundreds of midsize and large law firms through North America for several years now. The resulting free-agent culture of the BigLaw bar, as well as the increasingly yawning spread between the annual incomes of a firm’s highest- and lowest-paid “partners,” are hardly surprising results.

But should this state of affairs change in any meaningful way — should the power of the corner partner begin to wane, should the cult lose some of its fervour — then the implications for law firms and the legal market would be immense. This week, Ron Friedmann gave us a thought-provoking post that quotes extensively from an analysis by Steve Nelson, managing principal of The McCormick Group, who believes that this very change might be upon us.:

There is a widening gap between the prospective portable billings that incoming laterals vouch for and the actual results that occur months after the laterals arrive. While some of this can be attributed to overly optimistic predictions by the laterals themselves, we believe that other factors are more significant. In particular, the old adage about “we don’t hire law firms, we hire lawyers,” often no longer applies. Instead, in an era where increased pressure is on corporate counsel to reduce outside legal spending, there has been an increased emphasis to consolidate legal providers who both know the client’s business and can offer increased efficiencies. So the ability of one partner (or sometimes even a group) to hold onto a significant amount of a client’s business in a particular discipline is diminishing each year.

It’s difficult to overstate how significant this development would be on the corporate legal market. Both lawyers’ personal career trajectories and law firms’ strategic growth plans have long revolved around the idea that the partner is king and the corner partner is emperor. But there’s growing evidence that the emperor is perhaps not actually as fully dressed as we had thought.

I’ve heard of multiple law firms expressing disappointment over the failure of ballyhooed lateral acquisitions to deliver the promised injections of business and profit. Often, the new partner’s expenses (including paying for the entourage that accompanied him or her from the old firm) cancel out the new revenue streams; the partner is a zero-sum acquisition. More problematically (but quite predictably), the new corner partners don’t cross-sell to, or grow the business books of, their new partners: they guard their client relationships just as jealously here as they did there. And it need hardly be added that new corner partners are an unstable resource: just as the best predictor of divorce is having been divorced before, the best predictor of a partner leaving a firm is that partner having bailed on a previous one.

But there’s more to it than just profit churn and instability: there’s also a growing loss of faith in the lateral acquisition model itself. The tipping point here might prove to be the failure of Dewey & LeBoeuf, a mega-firm built on a stack of lateral partners the way Yertle’s kingdom was built on a stack of turtles. We’ve only begun to see the damage Dewey’s fall will wreak on the traditional BigLaw model, but I suspect one of the first victims will be the cult of the corner partner. Lawyers and law firms are remarkably susceptible to fashions in strategy and management; but as soon as one of these trends becomes unfashionable, it can’t be abandoned fast enough. Law firms everywhere are now waking to a sudden thought: not only does corner partner poaching not accomplish much, it can be incredibly destabilizing. Once that thought crystallizes, look out.

What’s really interesting, though, is that this isn’t just about the fall of the corner partner; it’s also about the rise of the law firm.

A funny thing happened following the financial crisis: law firms realized they needed to get better at what they did if they wanted to survive and prosper. What’s more, they actually began following through on that realization. One of corner partners’ strongest advantages over their firms has always been that most firms were haphazardly structured and amateurishly managed, never more than the sum of their parts: the best partners always looked better by comparison. That is now changing.

  • Professionally trained managers now occupy more positions of influence in law firms.
  • Practice and industry groups operate with more precision and panache.
  • Associate training and partner competence has received more attention and resources.
  • Knowledge management has developed real engines of expertise circulation.
  • Legal project management has brought order and discipline to the legal production process.

Law firms, after many years and many false starts, are finally starting to get their act together. Not all of them, by any means, and mostly in fits and starts. But there is unmistakeably a change in the air. Law firms are taking themselves more seriously as corporate entities, and clients are taking notice. We are seeing the start of a shift in the balance of power between law firms and their most accomplished lawyers.

Obviously, it’s very early days for this phenomenon, and as always, anything could happen. The history of both lawyer behaviour and law firm management provides ample evidence for pessimism. And even if diminished and brought to heel, corner partners remain extremely formidable forces within their firms and the larger legal market; there will always be outstanding lawyers and they will always command more than their share of the sunshine.

But I do think the days of law firms dancing attendance on, and throwing borrowed money at, the latest free-agent power broker are drawing to a close. The focused, streamlined and systematized law firm is, gradually but inevitably, on the rise. The cult of the corner partner is in slow but irreversible decline, and much of our conventional wisdom about the legal market is going down with it.

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.

International Legal Technology Association (ILTA) 2012 Annual Conference, Washington, DC

For the second straight year, I’ll be speaking at the annual conference of the International Legal Technology Association (ILTA), held this year in Washington, DC, from August 26-30, 2012. More details on my two speaking slots to come later this summer.