How client succession is driving law firm consolidation

Maybe, as the President of the United States believes, the world needs more Canada. What we do know is that the world evidently needs fewer Canadian law firms.

It’s been a busy month in the Canadian legal marketplace. On Sept. 12, Norton Rose Fulbright completed its six-year-long Canadian expansion by acquiring Vancouver’s 95-lawyer Bull, Housser & Tupper. On Sept. 20, DLA Piper picked up Toronto IP boutique Dimock Stratton and 16 of its 19 lawyers. And just yesterday, the largest firm in Manitoba (Aikins, MacAulay & Thorvaldson) and the largest firm in Saskatchewan (MacPherson Leslie & Tyerman) announced their merger and the creation of a 240-lawyer western Canadian firm, MLT Aikins. Market watchers might also recall that global labour and employment law giant Littler Mendelson came to Canada last year by swallowing Toronto L&E boutique Kuretzky Vassos, among other recent consolidations.

Canadian lawyers celebrating another law firm merger.

Canadian lawyers celebrating another law firm merger.

There’s something going on here, and it’s not just limited to Canada. I’ll run through some of the local implications first before looking at the big picture.

The Norton Rose, DLA Piper, and Littler expansions are qualitatively different from the MLT Aikins merger (although the fashionable thing these days is apparently to call all such deals “combinations”). These first three deals are acquisitions, pure and simple — and the easy way to differentiate an acquisition from a merger is that in the former, the name of the acquired entity disappears completely. Norton, DLA and Littler are international firms with worldwide brands, and a major element of their value proposition is sheer size and geographic reach. Each of these firms grows by absorbing smaller firms (or in the case of Ogletree Deakins, which also crossed the 49th parallel earlier this year, by raiding an established large firm). Norton Rose says its shopping spree is done; I’d be surprised if the same were true for DLA or Dentons, or for other global firms that are probably in serious acquisition talks with smaller Canadian firms right now.

MLT Aikins is a different beast — it’s a good old-fashioned blockbuster merger, of the kind we’ve not seen around here for awhile. The two originating firms were about equally matched in size and reputation in their neighbouring provinces (it’s a coincidence, but a nice one, that two of western Canada’s largest potash companies also announced their plans to merge this month, creating a $36 billion behemoth). A Prairie law firm (MLT Aikins will have a robust presence in Alberta and a smaller one in British Columbia, but it will probably be dominant mostly in its home provinces) is a sensible idea, and an overdue one: look at Atlantic Canada, where a fleet of small provincial firms merged into regional powerhouses back in the 1990s. And while many people outside the country (and more than a few inside) might dismiss what they think of as Canada’s “flyover provinces,” there’s a lot of resource development and business innovation happening there. If the two firms can successfully merge their cultures and operations — and that, of course, is always a colossal “if” — than MLT Aikins could be a powerhouse.

But this trend isn’t limited to Canada. Altman Weil told us back in January that 2015 was a record year for US law firm combinations (there’s that word again). Look closely at the list, however, and you’ll see that most of these “mergers” were the absorption of smaller firms in myriad jurisdictions by global giants (Dentons in particular seems like it won’t be satisfied until it has an office on the moon).

The advantages to the acquiring firms in deals of this type are obvious: new locations opened, top lawyers acquired, cash and PPP infused, brand extended, and so forth. Not everyone would choose to make size and reach their market differentiator, but if that’s what your firm has decided to do, then these are the tactics you adopt. Managing a firm that far-flung and with that many people — most of whom belong to a profession that’s not exactly renowned for collegiality and esprit de corps — is going to be, shall we say, a challenge. But if this is the life you’ve chosen, then I wish you godspeed.

What’s a little harder to perceive are the advantages to the acquired firm. Name deleted, history ended, autonomy lessened, reputation slowly fading away as new brand replaces old — that’s not what you’d normally consider a loot bag of treasures. If the new name, brand, and reputation are superior to your old one, then great. And if the new platform is stronger, more technologically advanced, more efficient and productive than what you had before, then all the better. But it seems to me that few law firms secure in their markets and happy with their current status and future prospects would be rushing to make that trade. One does not normally submit to another’s terms from a position of strength.

Shortly after Altman Weil released its 2015 merger report, Edwin Reeser, one of the most perceptive analysts of the current BigLaw market, published his own commentary, which included the following observations:

We can expect more “merger” activity as long as there are buyers in the marketplace who are interested in the acquisition of revenue streams. Who are the sellers of these revenue streams? In many instances, they are going to be lawyers, typically smaller groups of lawyers, who have something worth selling. But why would they sell voluntarily if they have a good thing going? Typically because they have one or two fundamental problems associated with their sustainability as an enterprise. One is succession to leadership. Two, and perhaps more fundamentally, to continue generation of the revenue stream when one key partner retires. 

A “merger” into a larger firm with an established operating structure and breadth of talent can help preserve that revenue stream. The pricing for such a move to a larger firm usually involves: (1) a compensation cut for the acquired lawyers, a function of higher overhead and thus lower operating margins in many larger law firms; (2) the need for a profit for the acquiring firm to be derived from the work and revenue generated by the new addition; and sometimes (3), a deal feature that allows the acquired lawyers to monetize and harvest some of the built-up value in their firm that would otherwise be lost if they were to wind down.

I am not, emphatically not, applying the foregoing analysis to any of the firms mentioned in this piece. But the term “liquidating merger” has a lot of resonance to me in this current market, because it tracks with something else I’ve been noticing for awhile myself.

I’ve been saying to law firms over the last year that the “succession planning” train has just about left the station. The time to plan for succession in law firms, to begin transitioning client relationships from senior partners to younger ones, was five to seven years ago. Many of us in the commentariat tried to persuade law firms in this direction; not many firms tried, and few succeeded. Now, because succession planning didn’t occur, we’re entering a period of “succession management” — and you can read that in the same sense as “crisis management” or “disaster management.” This will prove to be a significant, and ultimately transformative, development.

All these matters will be lost in time ... like tears in rain ... Time to merge.

All these matters will be lost in time … like tears in rain … Time to merge.

Succession is going to happen in law firms, in the sense that when a client relationship partner retires, that relationship and the work that accompanies it will transition to another provider. But as we know, in most law firms, the partner has no interest in encouraging that transition. The last five years of his practice figure to be the most gloriously profitable of his career, the crown upon his decades of hard work, and he’s not going to let any other head wear that crown even part-time or on weekends. Pleas from the managing partner to “think of the firm’s future” and “leave a legacy” will melt some partner hearts, but not most. I’m not judging any lawyer who responds in this fashion, but that’s the reality in many firms, and it’s an enormous challenge.

But here’s the thing: that challenge is actually greater than most firms realize. Because while the firm’s leadership fumes and fulminates about “succession,” the client is over here waving its hand and saying, “Uh, I’m pretty sure I have some say in where my legal spend is going now.”

The problem with “succession planning” is the arrogance of the assumption that the firm will unilaterally decide who takes over the client’s work, perhaps by way of written notification: “Dear client, since Bill has retired, you will now be dealing with Bob, best regards.” Clients, as I’ve been saying for some time now, have options, and they are exercising them. They can choose the lawyers in this firm with whom they want to deal, or they can choose another firm, or an LPO, or a flex-time lawyer platform, or an employee doing insourced work, or a software program. I’m just guessing here, but I doubt that most clients enjoy being regarded as an asset to be passed on to the law firm’s next generation, like a sacred relic or a family heirloom. The days when the firm could simply assume the client’s continued patronage following a partner transition are done.

That’s why the real opportunity presented by “succession” is to open a dialogue between the firm and the client about how the client would like to be served following the partner’s retirement. I wouldn’t be surprised if many clients actually look forward to these retirements — not because they’re glad to see the partner go, but because it gives them an opportunity to reset and enhance the business relationship without the risk of compromising the personal relationship that had developed. But I don’t think most firms recognize this opportunity, or act on it if they do. They see only that a lawyer who “controls the client” is retiring, and they need to find another lawyer to “control the client” afterward. But they lack the cultural mechanisms and the leadership to pull that off, and even if they could, they’re missing the larger point about how the nature of client relationships has changed.

The upshot, in firms that are experiencing this phenomenon, is that the eventual or imminent departure of relationship partners will leave the firms with few prospects for their continued growth or even stabilization. Within the next five or ten years, most of their business generation and client relationship machinery is going to be sailing yachts around the Mediterranean. As Ed Reeser says, the firms are losing the means “to continue generation of their revenue streams,” and they lack ways to renew those streams or start new ones. The next generation of partners, seeing this unfold before them, starts eyeing the exits, and the junior lawyers get worried and restless. In those circumstances, why not pick up the phone when the big firm calls, so that the indignity and messiness of a gradual decline can be replaced by the savvy strategy of merging with a global giant?

The inability of many law firms to address the difficult issue of key partner retirements, or to take advantage of the opportunity they present to reset and strengthen their client relationships, has left the firms with few options for continued growth down the road. This has surely been increasingly clear to the leadership groups within these firms for some time. And now we’re seeing a marked rise in the dissolution of law firms through their acquisition by much larger firms, effectively pushing all the difficult conversations and decisions about the firm’s future onto the desks of strangers in another city or country. It might be a coincidence that these two developments are trending in parallel. But I’m not inclined to think so.

Why law firms should focus on adaptation, not disruption

In a post last month, Ron Friedmann poured cold water on the notion that large law firms were anywhere close to being “disrupted” — to losing the commercial legal services market to high-tech NewLaw raiders. Disruption? More Like Incremental Change for Big Law, he said, and it’s hard to argue.

Many commentators claim that tech, especially artificial intelligence (AI), will do something to Big Law. I disagree. Tech more likely will do something in it: incremental change. …

By the late 1980s, a few law firms had most of their lawyers using PCs. The market did not reward these early adopters. Nor did it punish late adopters. The same pattern played out for email, the Internet, and social media. Tech did disrupt legal secretaries. But that took an economic crisis and 15 years. Tech has enabled change – for example, the rise of boutiques and clients using alternative providers – but that has not disrupted lawyers or law firms.

An even bigger event than tech – the 2008-10 economic crisis – also failed to disrupt Big Law, notwithstanding widespread layoffs and a few dissolutions. In the aftermath, Big Law faces price pressure and more competition, but not disruption. Even with tech, with price pressure, and with clients bringing more work in-house, Big Law prospers as reported by recent Am Law 100 and Altman Weil surveys.

With this history, I just don’t see how the new technologies today will be any different than the past.

The book actually wasn't that great. Better than the movie, though.

The book actually wasn’t that great. Better than the movie, though.

“Disruption” became a flashpoint term in the legal community a couple of years ago, when Clayton Christensen’s groundbreaking 1997 work The Innovator’s Dilemma belatedly reached the legal market and the “Reinvent Law” boom was at its loudest. Ron’s post suggests that it’s time we take another look at this concept and begin to parse the difference between disruption theory and on-the-ground practice in the legal world. Let’s do just that.

All market activity, obviously, requires two parties: a source of demand (purchaser) and a source of supply (seller). Market disruption requires the presence of a third party: a new, alternative source of supply that can appeal to the source of demand in ways that the primary supplier can’t. The alternative’s appeal lies in its ability to provide value to the purchaser to a degree or in a dimension that the incumbent supplier has overlooked, ignored, or believed to be impossible. The alternative supplier can generate this value because it has adopted a means of production profoundly different from the incumbent supplier’s, one designed to produce deliverables (in dimensions such as affordability, timeliness, convenience and quality) better aligned with what the source of demand really values.

Now, disruption theory states that given all these circumstances, the alternative supplier will steadily grow its market share — starting from the edges of the market and its least complex and lowest-value needs, then gradually working its way up and in to higher-value sectors as it develops and matures — until at a certain point, the established supplier fades away and the challenger becomes the new incumbent. The circle of life, and all that. Christensen cites numerous examples of this pattern from steel, computer chips, and many other industries. So how about law?

It seems to me that we have all the pieces in place right now, in the corporate/commercial legal market, for this kind of disruption to occur. (As George Beaton points out in a comment on Ron’s post, this process is further along in the consumer legal market.) We have demand on an enormous scale — several hundred billion dollars spent every year, by an increasingly irritable and cranky corporate client base. We have traditional supply — incumbent law firms with little imagination — by the hourly-billing boatload. And now we’re finally approaching a critical mass of the third ingredient: alternative sources of supply. You could group these options into three distinct categories.

  1. Alternative Options for Lawyers’ Services. It used to be that if you needed to buy a legal service or solution, you had to go hire a lawyer. Today, demand for some legal services can be met by viable substitutes for lawyers. These are primarily technology solutions (including ODR systems, e-discovery software, contract analysis programs, advanced document assembly software, expert applications, predictive analytics, and various cognitive reasoning systems), which can perform some tasks or achieve some outcomes that previously only lawyers could manage. The result: some legal work never makes it to a lawyer, going instead to a viable lawyer substitute.
  2. Alternative Platforms for Lawyers’ Services. Suppose that for your particular need, however, there is no viable substitute: you must have access to a lawyer. Well, it used to be that if you needed to hire a lawyer, you had to visit a traditional law firm (including solo practices) to find one. Today, demand for lawyers can be met by alternative platforms for lawyers’ services: project and flex lawyer companies, managed legal services providers, the legal divisions of accounting firms, and various self-identifying “NewLaw” firms, among others. The result: some “lawyer work” never makes it to a law firm, going instead to a viable law firm substitute.
  3. Internal Options for Addressing Legal Needs. The ultimate alternative to an external legal solution of any kind, though, is to remove the need for the external solution altogether. Corporate law departments have expanded their internal productive capacity — increasing lawyer headcount (insourcing), developing their legal operations (“legal ops”) capacity through software installations and process improvement techniques, and (to take another of Ron’s observations) “doing less law” and eliminating some legal demand altogether. The result: some legal work stays in-house and never gets shipped to any external provider, period.

It’s nothing short of fantastic that buyers can now access all these options. Kudos to them all. But so far, these alternatives have captured just a tiny sliver of the entire commercial legal market. A few worthy exceptions aside, large corporations and institutions haven’t significantly changed their legal buying patterns. That’s not because the alternative sources of supply have proven inferior to the incumbent suppliers — in fact, by most indicators of cost-effectiveness, quality, and value to the buyer, the opposite is true.

The real cause is that most front-line purchasers of corporate legal services (in-house lawyers) care more about what traditional suppliers (law firms) can offer them (strong personal relationships, a reliable brand, routine buying processes, and a familiar culture) than what they can offer the enterprise. Lawyers who buy legal services are just as conservative, risk-averse and change-resistant as the lawyers who sell them — probably more so — and they define “value to the buyer” much more narrowly and individually than their company does. Purchasers of commercial legal services, to this point, operate in a very different corporate environment than purchasers of steel or computer chips or other commodities. Their cultural influences and individual incentives reward low-risk decisions and prioritize personal relationships over enterprise results. The impact on buying patterns shouldn’t surprise us.

Now, corporate procurement personnel are currently hard at work infiltrating and influencing legal purchasing, either by persuading the legal department to exercise its buying power differently or commandeering that power altogether. Take the lawyers out of the equation, and maybe you start getting somewhere. But so long as lawyers are buying legal services from lawyers, and especially so long as both sets of lawyers emerged from the same type of law firm culture, there’s little reason to anticipate imminent change. While it still appears inevitable to me that commercial legal purchasing will be transformed — and with it, the entire commercial legal market — I’ve personally grown tired of its stubborn evitability. “Waiting For Procurement” is not a performance I feel like sitting through multiple times.

We need to talk about Godot’s productivity.

The larger point, though, is this: “Disruption” is a means to an end, not an end in itself. It’s not a goal towards which anyone in the legal market should be bending his or her efforts. It’s simply a process by which other goals — chief among them, a more effective legal market that serves its customers better — can be achieved. Disruption will come when it comes, and there’s not much more to say about it than that.

The more interesting and important question, I think, is how the traditional incumbents will react to the high-tech upstarts in the meantime. What law firms do in response to the market’s emerging “NewLaw” options will determine the long-term success of both groups.

It should be pretty apparent that the longer the “disruption” process takes, the more difficult life becomes for most of the innovative alternatives. The builders of better mousetraps can wait only so long for the world to beat a path to their door — eventually, the venture capitalists who funded the traps want to see some Return On Mice. A drawn-out disruption period is especially hard on smaller upstarts, who either run out of money or become ever more vulnerable to acquisition and consolidation by rivals with larger footprints and deeper pockets. And of course, if market resistance to innovative new options is strong enough and lasts long enough, there’s a chance that the whole concept of viable alternatives to traditional suppliers will fall out of favour altogether, and the revolution will be stopped before it can begin.

For all these reasons, you’d think that traditional law firms would have every incentive to prolong the “steady state” of the old legal market, with its toothless demand and monolithic supply, as long as possible. But if anything, the danger to law firms here is more acute than to the upstarts.

The longer disruption takes, the more comfortable life will seem for the incumbent suppliers, and the more likely that they’ll be lulled into a competitive slumber. But whether it arrives tomorrow or next year or ten years from now, change is gonna come. The value proposition of alternative suppliers is too strong, and the well-publicized process of adjustment is already underway within some of the biggest sources of legal demand (including Shell, Cisco, Honeywell, AIG, and Capital One). Just as importantly, the alternative suppliers that do survive will get bigger and stronger by the day, growing and consolidating into truly formidable opponents. Law firms that fall asleep will be shaken awake to the realization that the waters kept on rising while they slept, until the levees eventually gave way.

So for law firms, the concept they should be focused on isn’t disruption, but adaptation. How will they adapt to changing market demand? How will they adjust their offerings and rework their operations to compete against powerful rivals for the attention of sophisticated and aggressive buyers? Will they try to destroy high-tech providers, or integrate them? Will they ridicule process improvements, or adopt them? Will they keep trying to “out-lawyer” everyone or, as I’ve argued, start trying to out-customer them?

The more that law firms accept these realities and adapt to these new alternatives, the less business they will lose, and the less these new alternatives will advance: by co-opting their rivals’ best features, they will improve their own productivity and value and maintain their dominant market position. There’s no shortage of examples in this regard among established incumbents (including Wachtell, DLA Piper, Norton Rose FulbrightDentons, Baker Donelson, Littler, AkermanAshurst, Mishcon de Reya, Gilbert + TobinMcCarthy Tétrault, and Stewart McKelvey), but you’ll also find some alternative providers going the same route (including Deloitte, LegalZoom, Riverview Law, and Lawyers On Demand).

Conversely, the more firms resist the advancement of substitute providers and stick to their old ways of doing things, the more time they’ll grant their most fearsome competitors, the more ground they’ll lose to them, and the faster the disruption process will proceed. For every day law firms fight adaptation, that’s another day in which the alternative platforms receive an extended lease on life — and that’s a dangerous game for law firms to play. If you give competitors with a better way of doing things enough time and oxygen to grow, then grow they will.

So this is a key moment for law firms. Viable substitutes to law firms have established themselves on the margins of the market, offering a genuinely better option for at least some legal services to (what is currently) a skeptical and conservative community of buyers. Most law firms seem to be betting that the market will remain skeptical and conservative — that the odds of real demand in market change are so small that the substantial payload of the corresponding risk can safely be ignored. That’s not a bet I’d care to place right now.

Disruption has not reached the commercial legal market, and maybe it won’t for a long time. But adaptation is here, right now. And for law firms, adaptation is by far the more pressing and important matter. Law firms can afford to put off worrying about disruption for the foreseeable future. I don’t see how they can put off thinking about adaptation one day longer.

Who’s your biggest competitor?

That’s a question I sometimes like to ask when visiting a law firm or speaking to an audience of lawyers: “Who is your biggest competitor?” I usually let the respondent decide what “biggest” means — sometimes they interpret it to mean the competitor who poses the greatest threat to their book of business, or who has the kind of clients the lawyer wishes he or she had, or who keeps them up at night worrying about what they’ll do.

Take a moment to think about it yourself. Who’s your biggest competitor? If your colleagues happen to be walking past your door, flag them down and ask them. Come back to this post when you’ve written down your answer and/or collected others.

So, here are the most common answers to that question, in no particular order:

  • A specific lawyer in another firm
  • A specific lawyer in my own firm (surprisingly common in larger firms)
  • An entire practice group in another firm
  • An entire firm (managing partners think along these lines)
  • A legal provider outside my jurisdiction (LPOs, for example; not too often)
  • A non-lawyer substitute, such as LegalZoom (more common for smaller firms)
  • Me (the clever answer from lawyers who take pride in always pushing themselves harder)

I don’t dispute any of these responses, and some of them are absolutely correct. Sometimes a lawyer might identify the right category (a lawyer in another firm), but the wrong specific answer (it turns out that Attorney B, rather than Attorney A, is her biggest competitor). Nonetheless, I think that many of these responses are wide of the mark, because they overlook what I consider to be almost every lawyer’s biggest competitor, now and especially in the future.

  • My client.

We have entered the era of do-it-yourself lawyering. Clients of every type — individuals, families, businesses, corporations, non-profits, and governments — have taken their lead from Annie Lennox and Aretha Franklin: they’re “doing it for themselves.” They are self-navigating their way, in whole or in part, through the legal system to achieve their goals — not because they love the experience or because it delivers better outcomes, but because (a) the price of a lawyer’s full-time guidance is beyond their means or disproportionate to the value of their needs, and (b) products and services are emerging to help them self-navigate.

Consider:

There’s a lot more going on here than simply an “access to justice crisis,” although that’s certainly part of it. What we’re seeing, partly in response to that crisis, is the gradual acquisition by both individuals and businesses of the skills, confidence, and willingness to manage at least part of their legal affairs on their own.  [do_widget id=”text-7″ title=false]

The longstanding assumption at the heart of the legal system — one shared by lawyers, judges, and legal organizations — is that interaction with the system requires the assistance of a lawyer. We unconsciously assume that “hiring a lawyer” is the default setting. But as I’ve written before, that assumption is no longer shared outside the legal community — lawyers are in danger of becoming incidental to the legal system.

I think “self-navigation” is the fundamental trend driving much of what’s confounding lawyers and the legal system today. And I don’t really see that this trend will be thwarted or diverted anytime soon. Technology continues to develop useful and accurate tools for legal self-navigation, lawyers increasingly recognize the benefits of limited scope representation, and the spread of open and well-designed legal knowledge and information systems is constantly creating more sophisticated system users.

I suspect that this trend will result in a re-examination of the word “client.” We use this word to describe the people and businesses who hire us to guide them through the legal system — but when you think about it, “client” is an oddly possessive word for us to use. When we, as lawyers, call someone a “client,” we define them in terms of their relationship to us. That has several practical and ethical benefits for lawyers, but it also traps the person or business in a one-dimensional, lawyer-facing position regarding the legal system. What we’re starting to see is people and businesses struggling to free themselves from that straitjacketed, all-or-nothing position. And I think they’re getting the hang of it.

In future, people and businesses with justiciable issues will have a portfolio of options for addressing those issues, and at the centre of that portfolio will be not a lawyer, but the individual person or business. Lawyers will simply be one of the options in that portfolio, to be deployed selectively and appropriately when our skills match the present needs. Our “clients” are going to assert more independence, carve out a stronger position, gain more choice in understanding and resolving their legal issues. Instead of automatically coming to us and asking, “Can you do this for me?” they will increasingly bypass us while saying, “I can do this part myself.”

So don’t focus too heavily on what other lawyers, other firms, or even the dreaded “non-lawyers” are doing to take business from us. From now on, our own clients will be our biggest competitors.

Jordan Furlong is a lawyer, consultant, and legal industry analyst who forecasts the impact of the changing legal market on lawyers, clients, and legal organizations. He has delivered dozens of addresses to law firms, state bars, law societies, law schools, judges, and many others throughout the United States and Canada on the evolution of the legal services marketplace.

The incidental lawyer

The South Carolina Supreme Court ruled this week that LegalZoom’s services do not constitute the unauthorized practice of law. As reported by Greg Lambert at 3 Geeks, LegalZoom’s press release celebrates the news, while also taking pains to note that the company’s documents have been reviewed by the state Supreme Court and that it frequently refers its customers to licensed lawyers for more complex work.

What interests me more than the outcome of the case, however, is that a lawyer (and he’s not the only one) felt compelled to spend time and money challenging LegalZoom in the first place. Think about the practical results that would have followed had this lawsuit succeeded.

A source of legal materials that, by most accounts, is at least adequate for the needs of its customers would disappear from the state, leaving those customers once again with the prospect of hiring a lawyer they know they can’t afford or seeking a lesser alternative (along with a chilling effect on any other business inclined to try the same thing). Would lawyers have reduced their fees in response, to become more affordable to the low-income market segment that LegalZoom serves? If so, it would have been history’s first recorded instance of a supplier lowering, not raising, its prices in response to reduced competition. If there’s a net social benefit here, I’m not seeing it.

What, exactly, are efforts like this designed to achieve? “The protection of the public interest” is the standard justification — even though the public has an equal if not overriding interest in having tools and processes with which to exercise its legal rights, is already protected by the right to sue an incompetent or fraudulent provider in court, and is comprised of adults who presumably can make informed decisions about their own lives with their own money. There’s a subtle but importance difference between “protecting the public interest” and “serving the public interest,” and we’re supposed to be pursuing the latter more than the former.

The likelier explanation, of course, is that these efforts are really trying to protect the interests of lawyers. But I think they’re actually achieving the opposite. Whenever we reflexively oppose “non-lawyer” legal service providers, we’re saying: “There is no place for anyone in this market except lawyers.” But that sentiment is not based in reality. If you believe it, then you ought to take a step back and consider just how incidental lawyers already are in in this market — how far we’ve drifted from the centre of the legal system and towards its periphery. And every time we try asserting our indispensability in the face of reality, we just accelerate that drift.

The American Bar Association, the Canadian Bar Association, the UK’s Legal Services Board, the World Justice ProjectStanford Law School, the Canadian Department of Justice, and the Canadian Action Committee on Access to Justice in Civil and Family Matters are among the groups that have released studies over the past several years demonstrating what a small and shrinking segment of the legal market is actually served by lawyers. A good example is the Department of Justice study from 2007, which asked thousands of Canadians if they’d had a “justiciable problem” over the past three years, and if so, what they did about it:

  • Slightly less than half dealt with it themselves.
  • About a fifth did nothing.
  • About another fifth got non-legal help (e.g., unions, government, friends or family).
  • Less than 12% got legal help.

Given that this survey was published a year before the financial crisis, I don’t see how that 12% figure has improved since then. And it’s not an outlier: the UK survey found a similar result, as only about 16% of small businesses with legal issues turned to a lawyer to help them. According to the ABA, courts across the United States report between 60% and 90% of family law matters involve at least one self-represented litigant. The legal market, viewed in its entirety, is like an iceberg, 85% hidden below the surface. Lawyers have concerned themselves only with the small fraction above water. Everyone else is down there on their own, holding their breath.

We normally use facts like these to illustrate the “access to justice” crisis, and we convene panels in which we sternly lecture the profession and the courts about our moral failure: “Your access to justice is bad and you should feel bad.” And that’s fine. But what these facts should also illustrate is something that we ought to take just as seriously: the “lawyer irrelevance” crisis.

With a few exceptions (principally criminal defence work), lawyers are simply not relevant to 80% to 85% of all individuals and businesses with legal issues. We’re off the table: we’re briefly considered and quickly dismissed. We need to recognize and absorb the fact that a huge amount of legal activity already takes place entirely without our involvement.

And that was the situation before the market began bringing forth new options for legal solutions. We were already peripheral before barriers to non-lawyer entry began falling, before legal technology began making such impressive strides, before LegalZoom was bringing in $200 million a year, before the legal startup sector received $458 million in outside funding last year. One startup I spoke with last month was just the latest to tell me that that its product was designed to “take lawyers out of the equation.” When you consider how few equations we’re already in, this ought to bring us to immediate attention.

Consider what’s going on in the market right now:

  • Australia approved “non-lawyer” law firm ownership a decade ago, England & Wales has issued 300 Alternative Business Structures licences since 2012, and Ontario will soon become the first North American jurisdiction to grapple with this option (aside from Washington State, which has already approved limited-license legal technicians).
  • Computers can now do the following things: draft commercial contracts, review contract provisions, assess electronic evidence for relevance, answer legal and regulatory questions interactively, predict the outcome of negotiations, and partition marital assets in a divorce. What will they be able to do in another five years, or ten?
  • Self-represented litigants are receiving growing levels of institutional support: courthouse kiosks provide them with guidance, lawyers unbundle services to support them through limited-scope retainers, and startups create systems and programs that maximize their ability to get the results they want. Self-representation is becoming normalized.

So let’s say that lawyers serve about 15% of the total potential market, and make a decent living doing so. As a lawyer, you might be satisfied with that: let the other 85% take care of itself, or use one of these alternatives. You’ll continue to serve the highest-level, most lucrative market segment, the small chunk of the iceberg above the water. So what if lawyers are peripheral to the entire market? We’re central to the richest part of the market, the one you care about, right?

Right. But what happens when all these “non-lawyers,” all this technology, all these self-represented litigants and their supporters, get better at what they do? What happens when, in addition to being cheaper than lawyers and faster than lawyers, they start to become almost as good as lawyers? Do you really think they’re not going to look up through the water at the tip of the iceberg and think, “I’d like a piece of that?”

This is what I mean when I talk about lawyers becoming increasingly incidental. A huge amount of legal activity already takes place without us — and what the foregoing should make clear is that that amount is growing. The ability of the legal market to function adequately and competently without the involvement of lawyers is increasing. Deprived of access to the best and most valuable asset available to assist them — lawyers — people have started to look for substitute assets, and where they can’t find such assets, to create them. Those substitutes are now here, and filing UPL lawsuits against them isn’t going to stop the process that spawned their development.

Because too often, that’s how we’ve been responding to what the market is telling us: with hostility, or with arrogance. I’ve lost count of the number of lawyers who’ve chuckled at warnings about “non-lawyer” providers, saying (sometimes literally), “Ka-ching! Every time a client tries to use one of these companies, it just means more business for me when they come looking for help to straighten out the mess they made.” What a selfish, unprofessional attitude we’ve developed: comfortably serving our 15% of the market, blocking the other 85% from accessing whatever help they can get, and smugly feasting off the problems of those for whom even these efforts went wrong. And we wonder why people are looking for alternatives?

But here’s the thing: I don’t believe that lawyers are doomed to the periphery of the market — after all, we used to be central to it. There was a time when we were intrinsic to the enforcement of legal rights and the execution of legal procedures, essential to a functioning market in legal services. But over time, we allowed ourselves to become optional, to become something close to a luxury good — content to serve the most well-heeled clients with the most interesting cases in the most convenient manner. We’re meant to be stewards of the entire legal system, but we’ve confined ourselves to our small gated grounds and let the rest of the property manage itself.

But that is not irreversible. I’ve met too many concerned, creative and compassionate lawyers, and I’ve seen too many praiseworthy change efforts already within the legal profession, for me to give up on lawyers as a universal legal solution. I believe that lawyers can and should serve more than 15% of the market. I believe we can because the tools and the procedures are now available to enable us to offer high-quality legal services more efficiently, effectively, and affordably. And I believe we should because we are still (for the moment) the most valuable and effective resource available for the resolution of legal problems, and it’s wrong for those resources to benefit only a select few.

Maybe not everyone needs the skills and expertise of a lawyer. But everyone deserves the opportunity to find out if they do. Let’s stop fighting the needs of the 85% and start figuring out how we can serve them instead.

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.  

What do lawyers sell?

The first time I heard Richard Susskind speak was at a Canadian Bar Association conference in Montreal in 2007. That was also the first time I heard one of the best parables about professional services ever told. I’ll try to paraphrase Richard’s delivery from memory:

“Black & Decker, the power tool company, had just hired a new CEO. He walked into his first meeting with his board of directors, held up a power drill, and asked, ‘Is this what we sell?’ The directors looked at each other and looked at the drill and said, ‘Yes, that’s one of ours; that’s what we sell.’ ‘No, it isn’t,’ replied the CEO, and he put down the drill and picked up a board with a hole in it. ‘This is what we sell,’ he said. ‘This is why the customer comes to us. This is what he wants.'”

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That’s a magnificent illustration of the best way, the only correct way, to look at the process of buying and selling anything — that is to say, from the buyer’s perspective. Given the legal profession’s struggles to cope with a newly evolving market — as exemplified by the shocking cuts and wholesale retrenchment of many large law firms recently — it seems like a good time to apply that question to lawyers.

What do lawyers sell? Ask 100 lawyers that question and you’ll get, not 100 different answers, but a very narrow range of familiar answers, repeatedly proffered. “I sell my time,” some lawyers will respond. “I sell my expertise,” others will reply. The MBA types: “I sell solutions.” The ones who’ve been paying attention: “I sell value.” The ones who haven’t been paying attention: “I sell excellence.”

None of these, however, is a good answer, because none of these are things that clients specifically need and that can be identifiably described.

  • Time: No one in history has ever bought or sold one second of time. It’s not a commodity in any sense of the word.
  • Expertise: No client needs legal expertise for its own sake. Specialized knowledge has only applied, not intrinsic, value.
  • Solutions: Getting closer, but this is a buzzword that’s meaningless without context. And not every legal matter is a “problem.”
  • Value: Closer again, but really, “value” isn’t much better than “solution” — it’s another way of saying, “I sell you what you want.” It’s circular.
  • Excellence: Must try harder.

There’s a better answer to that question, I think — one that unites the many incredibly disparate strands of legal services. There’s one response that can legitimately cover all the myriad needs of diverse legal clients — from getting a will made out to clearing up a tax issue, from overseeing a bankruptcy to managing a high-stakes acquisition, from defending an assault charge to gaining a permanent work visa, from enforcing a child support order to appealing the loss of a business licence.

That one answer is this: Lawyers sell peace of mind. This is what clients seek when they turn to a lawyer. This is their “hole in the board.”

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“Peace of mind” is what you get when you find someone with expertise, someone who’s excellent at what they do, someone who comes up with solutions to problems and avenues for opportunities — you find them, and you speak with them, and over the course of time, you come to trust them. You trust that they will help you, that they will use their skills to remove a worry, manage a process, or come up with an answer that has eluded you. That trust delivers peace of mind.

Almost every client, when he first contacts a lawyer, is legitimately anxious about something important. He’s worried, he’s not sleeping well, his emotional well-being is compromised. “Peace of mind” is what that client gets in that blessed moment when he can say to himself, “It’s alright. I’ve talked to a lawyer, and she’s given me options, and she’s working on the matter, and she’ll take care of it. Someone is looking after it, or will help me through it. I can start to relax now.” And he does.

Look at your own client relationships. Think about the most rewarding engagements, the most satisfied clients. Maybe they won their case, maybe not. Maybe the deal closed, maybe not. But in most cases, the clients who speak most highly of their lawyers are the ones to whom the lawyers gave the gift of peace of mind — the trustworthy assurance that someone is sharing their burden and helping get them to a place where the burden will be lifted.

Clients buy peace of mind — that’s what they want when they hire a lawyer. Gear everything about your practice — your first consultation, your personal manner, your client communications, your dependable prices, your transparent activities — towards increasing your trustworthiness and reliability and relieving your client’s worries and burdens. You will be a happy, successful lawyer with happy, satisfied clients.

Available now! My first two published books: Evolutionary Road (e-book published by Attorney At Work) and Content Marketing and Publishing Strategies for Law Firms (co-authored with Steve Matthews, published by The Ark Group). Click the links to learn more and order your copies today.

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.

 

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.

Losing the confidence game

Here are six observations about the legal marketplace for you to consider, each supported by a news report filed just in the last few days.

1. Fewer people want to be lawyers.

Number of law school applicants continues to slide: “[US law school] applications submitted are down 13.6%…. That translates to about 66,696 applicants and about 484,576 applications…. Over the past two years, there’s been a 24.1% decrease in the number of law school applicants and a 19.6% decrease in the number of law school applications submitted… [T]he legal market … is expected to have difficulty absorbing the 45,000 students preparing to graduate law school in each of the next three years.”

2. Fewer new lawyers are finding legal jobs.

Two law graduates for every lawyer: “The [US] Bureau of Labor Statistics [BLS] estimates that 212,000 jobs will become available for [US] attorneys over the course of this decade, mostly as a result of replacement rather than growth. If the number and size of ABA-accredited law schools remains the same, that means 48% of law graduates this decade can be expected to get (not keep, get) a legal job.

3. More clients are using lawyer substitutes.

The low-cost lawyer is not a lawyer: “The financial constraints of the last few years have forced companies and law firms to consider whether every legal problem must be staffed with attorneys who, thanks to the high costs of their education, demand higher salaries.  If BLS’ projections bear out, it appears that clients and firms may have found permanent low-cost substitutes for many legal jobs in the form of paralegals, legal assistants and even accountants.”

4. Lawyers’ monopoly over legal services is dissolving.

Co-Operative Legal Services granted license to practice law: “In the past six years, [the Co-Op] has built a £25m-plus, 500-person legal business without needing to be an ABS, but the licence opens up more opportunities.They include launching a fixed-fee family law service later this year, handling legal aid work, and offering face-to-face legal advice through the Co-op’s bank network.”

5. Clients have access to lawyer-like technology.

Disruptive technology in the hands of clients: “The Association of Corporate Counsel today launched ACC Contract Advisor, a contract-drafting tool built on what is described as a “vast collection” of sample contracts and thousands of real-world clauses. Launched in collaboration with kiiac.com, the new resource is, unfortunately, available only to ACC members. … A user can search all documents for specific language. Model contracts and clauses can be downloaded.”

6. More disputes are being resolved without lawyers.

Coming soon: a global ODR system: “Businesses that have a really well-developed resolution system make a lot more money. Customers trust them,” added Rule, former director of online dispute resolution for eBay Inc., and PayPal, which collectively uses ODR to resolve 60 million disputes a year. … “We built a civil justice system. We built a walled garden. Now the challenge is more and more transactions are happening outside the walled garden.”

You could draw any number of conclusions from these six data points. But my strong impression is that we’re experiencing a switch in the legal market’s default setting.

Watching the legal profession today is like seeing a champion golfer, previously considered invulnerable, struggling with his game for so long that at a key moment, his opponents experience a sudden switch from feeling intimidated to feeling empowered. It’s like seeing a global business smartphone giant, whose products were once ubiquitous, suffering so many consecutive reversals of fortune that at a key moment, the market decides that the company’s products are no longer the default standard and switches en masse. It’s like seeing a national leader, in power for so long that everyone accepts his rule as a fait accompli, make enough bad decisions that the streets are filled with opponents who suddenly believe today, as they haven’t for many yesterdays, that change can happen.

The aura of incumbency is far more powerful than we realize. Politicians who “can’t” lose, products that “can’t” be outsold, majority opinions that “can’t” be swayed — in these and similar situations, the “can’t” is most often rooted in the challenger’s state of mind. The simple act of observing those who occupy positions of power leads us to credit them with more merit than they probably deserve. The incumbents, in turn, sense and absorb this impression, making them feel and appear even stronger, while also making them more complacent.

But when the aura of incumbency flickers or fades — when, for a variety of reasons, the “natural” leader suffers a series of setbacks and loses momentum — then a switch invariably occurs, first in people’s minds and then in the market. That’s where the legal profession is, right now.

We’ve held down the primary (if not the exclusive) position in the legal market for so long that everyone — ourselves included — came to believe that this was the natural order of things. Then things changed, as things tend to do. We’ve found ourselves losing much of our momentum and with it, much of our confidence. The aura of our incumbency has slipped. Everyone sees it, and everyone feels the change. And suddenly, we’re foundering.

Can we regain that momentum, restore our aura? I’m not sure. Confidence is a scarce resource in a marketplace: rarely do both the challengers and the champions possess it. Right now, the momentum belongs to the challengers, who see an opening they’re never seen before and had perhaps believed they never would. Lawyers are vulnerable, both in mood and in market reality, to a degree that I think we’ve never experienced. We need to find our confidence and re-establish ourselves as the favourites — but confidence, like liquidity in a financial crisis, is always available except when you really need it.

We’ve entered a crucial period in the evolution of the legal market, one that could usher in a paradigm change, a platform shift, a change on the leaderboard. Are we up to the challenge? The answer to that question contains the future of our profession.

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.

Pricing to the client experience

Many lawyers, gnawed by doubt, regularly ask themselves, “What should I charge?” It’s the question with a million right answers — which is to say, with no right answer at all. Whatever number you finally settle on, however, is less important than the process by which you arrived at it. As far as I can tell, lawyers’ most common methods of determining price are:

  1. Find out what comparable lawyers are charging and, depending on your self-confidence, charge more, less or about the same as them.
  2. Calculate your internal costs of doing business, tack on a percentage equal to your desired profit margin, and charge that.
  3. Keep quoting slightly higher prices for successive clients until one of them winces or balks, then hang out at that price for a while.

Each of these approaches has its merits, I suppose. But you’ll probably notice that each has one thing in common: the client is not asked to participate. Lawyers have rarely if ever invited the client into the pricing process, mostly because they assume the client will do everything in its power to drive the final price down. That’s not an unreasonable assumption, on the face of it, but it means that the lawyer is left groping alone in the dark for a number in which the client has an equal interest.

An emerging line of thought in alternative (non-hourly) pricing, one with which I’m in strong agreement, asserts that the client is in fact indispensable to the pricing process. “Pricing your product is actually simple, as long as you consider it from the buyer’s point of view,” says Seth Godin, who knows more about pricing than most people. “The real trick is gaining an understanding of what [clients] actually do and do not value in a given piece of legal work. … [and t]he only effective way to understand a client’s value priorities is to have a direct conversation with them,” says Toby Brown, who knows more about pricing than anyone else in the legal market.

Now, I’m certainly not saying that you let the client determine what the price is going to be. I’ve said elsewhere that it’s the seller’s job to take responsibility for price, Toby emphasizes that the client’s value proposition must be reconciled with the lawyer’s, and Danny Ertel adds for good measure how critical it is that the lawyer learn what line of reasoning led the client to its own price estimate. Pricing is a two-way street. More to the point, it’s a conversation — not a monologue or a directive or a statement of fact by the lawyer. You cannot have a grown-up conversation about pricing without the client.

I want to take this line of thought another step further. I want to suggest that not only does client participation make pricing easier and more satisfying, but that clients themselves can actually be the basis of your pricing. Matt Homann points us to a great article called “Pricing strategies for creatives” (a category that I think includes lawyers), which included this powerful excerpt:

It’s a little-known secret that you can charge not only for your creative work, but also for the client experience around the work you deliver. In essence, you can price things that have nothing to do with design, but have everything to do with the experience your client encountered throughout the process of engaging with you on their project.

I think this is completely applicable to the legal profession. So many lawyers (as so many clients will ruefully attest) can barely bring themselves to notice how clients experience the legal process. We pay close attention to the nature and quality of the legal work we do, but we pay relatively little attention to how we deliver that work, how our services are received, and how the client feels about it. A small minority of lawyers and law firms, for reasons of personality or branding or both, do pay attention to the “how” of legal services, and they reap the benefit of happier clients (and often, happier lawyers). But I’m not aware of any firm that has explicitly said, “The client experience will be a key component of our pricing strategy.”

Think of it this way. One law firm might say, “We have the very best lawyers in the city, and we charge a premium for that unique characteristic.” Another firm might say, “We are the biggest firm in the country, and we charge a premium for that unique characteristic.” What if your firm said, “We make the client the center and purpose of everything we do here — and we charge a premium for that unique characteristic.” The nature and value of how your client receives your services can be the basis of your pricing, so long as hardly anyone else makes that their unique competitive foundation — and that, in the legal profession, is not a concern that should keep you up at night.

Law, as usual, lags behind other sectors in this regard. In any other service business, how you are served is a differentiator, if not a full-scale driver, of pricing. If you don’t believe this, think back to the last time you tipped more (or less) than 15% at a restaurant, and ask yourself why. I can almost guarantee that it had nothing to do with the food or the decor; the menu already priced those out for you. The tip is what you pay for service. And what you tipped your server had everything to do with whether or not you received service that was cheerful, responsive, quick, inquisitive, memorable, and genuinely focused on your enjoyment of the experience — or that was the opposite. That’s what you pay for when you’re buying services. Why would your own clients be any different?

If the way you treat your clients is cheerful, responsive, quick, inquisitive, memorable, and genuinely focused on their interests, you can charge for that. In the legal marketplace, in fact, it’s such a huge differentiator that you can probably charge a lot for it. You can charge for hiring people obsessed with client satisfaction. You can charge for returning calls within 24 hours. You can charge for giving clients 24/7 access to their files and billing status. You can charge for entering your clients’ birthdays into your CRM system and sending them a card on the big day. You can charge for asking, “Is there anything else, anything at all, that we can help you with today?” For crying out loud, you can even charge for not charging by the hour! These are real client benefits. They make clients’ lives easier or happier. And most lawyers don’t offer them.

Are all these things entered as separate line-item charges in the bill? Of course not! But they’re part of the service experience at your firm. They’re what make you special — because they make your clients feel special. And that is not a commodity. That is not subject to the vagaries of the market. The price of almost every lawyer product — the deliverable or outcome at the end of the lawyer’s efforts — will decrease over the coming decade. But the price of a lawyer’s service — the personal, customized, convenient, anticipatory, strategic, counseling, caring way in which the client is treated and their interests looked after — will hold steady and will very probably rise.

There is always going to be exquisitely challenging or important legal work for which clients will pay virtually any amount billed in any format, even if delivered with an impersonal touch bordering on disdain. But most legal work is not in that category, an emerging fact that’s cutting the legs out from under the standard billable rates that many lawyers and law firms have traditionally commanded. We need a new basis for asserting our value and differentiating ourselves from each other. We’re all smart and knowledgeable and hard-working. But we’re not all great at service. We don’t all care the same about our clients. We don’t all engineer our billing methods and matter management and client communication so as to maximize the client experience.

Markets reward scarcity. Great client experience in the legal market is scarce. It’s time to think about client-experience pricing.

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 imaginary normal

The joke goes like this: “The optimist says the glass is half-full. The pessimist says it’s half-empty. The engineer says it’s twice the required capacity.”

So what does the lawyer say when looking at the glass? In many cases, it’s: “Why hasn’t anyone refilled my drink yet?”

I speak to more lawyers and legal professionals every day who really get it — who understand how much is changing and who are preparing to adjust and respond. I can’t tell you how encouraging that is to me.

But I’m still taken aback by the number of lawyers and legal professionals who cannot or will not recognize what’s happening — who look at the market and see only what they want to see, interpreting a storm of the century as merely a passing squall.

For many such lawyers, I’ve come to conclude, the underlying cause of that delusion is a sense of entitlement. They’re entitled to respect for their position, steady work from clients, protection from unqualified competition, privilege at the top of the pyramid, stability in an unstable world.

And why should they think different? It’s all they’ve ever known and it’s rewarded them handsomely, so of course they believe it’s the natural order of things. They believe it’s normal, and they’re waiting impatiently for it to return.

Here’s what I want them to understand: It’s not normal. It never was.

The legal market hasn’t really been a “market,” in classical terms, at all. It’s been artificially constrained for decades by asymmetric knowledge, inadequate technology, limited competition, undifferentiated providers, seller-driven pricing, and most damaging of all, the absence of disinterested regulators. Accordingly, buyers have long suffered from weak bargaining positions and low self-confidence. Why, when you stop and think about it, would we ever have supposed that was normal?

The legal profession has been living inside a bubble for decades. And like all bubbles, those on the inside thrived disproportionate to the overall benefits they were delivering, while resentment and frustration continually grew on the outside. And we had no clue, because we figured that was how it was meant to be.

But now that’s changing. Consumers are gaining more knowledge and more choice, giving them more power. The bubble is leaking. The traditional mechanics of healthy markets, by which sellers truly compete with each other to gain the business of well-informed buyers on the buyers’ terms, are reasserting themselves. A legal marketplace that has always been tilted in lawyers’ favour is rebalancing itself.

This isn’t a market going crazy. It’s a market going normal. And it’s not going back.