What the recession will bring

My newest Law21 column is up at Slaw. Click the link to go read it, and then take some time to peruse all of Slaw’s other great posts and conversations at what Dennis Kennedy calls the best law blog in the business. As always, I’ll also post the article here.

“Are we looking at a second Depression? I don’t think so,” said Paul Krugman, NewYork Times columnist and Nobel-Prize-winning economist, during his luncheon address to the Canadian Corporate Counsel Association’s World Summit last week in Vancouver. Then he added: “A month ago, I would’ve said, ‘Absolutely not.’ But today, I’m going to say, ‘I don’t think so.'”

That was the standout quote for me from an economic assessment so pessimistic that at its end, Krugman admitted: “I wish I had some positive things to tell you.” But aside from, as he said, having “people in Washington I can now talk to,” he didn’t have much good news to share. The powerful tremors emanating from Citigroup add to worries that even an astonishing American stimulus package of $800,000,000,000 — a financial adrenalin shot roughly equal to Australia’s entire GDP — won’t cover even half of the expected $2,000,000,000,000 in losses this recession is pounding out. Every country’s economy is in trouble, and even those with the political will and financial tools to address the problems seem stymied. Europe is facing particular challenges, while China — whose financial statistics are “science fiction,” Krugman said — is facing a sharp downturn. He thinks the eventual solution to banks in crisis is going to be nationalization — though he observed that not even the Obama administration is psychologically ready to take that step yet.

Now, another Great Depression is still a considerable distance away (we’re nowhere near 25% unemployment, GDP cut in half, or a stock market reduced by 90%, for example). And since whatever the mainstream media brings you is pre-inflated at least 20% by hype, you could be forgiven for thinking that things are bad, certainly, but not borderline catastrophic. But while Krugman’s grim outlook took me aback, what really struck me was the lack of surprise among audience members, including a lot of general counsel and in-house lawyers from national and global entities. Some of them nodded in agreement and all of them seemed to have had their beliefs confirmed, not undermined, by his remarks. They had the air of people who know exactly how bad things might be.

Law firm lawyers should be concerned by that. They should also be concerned by this: for the most part, surprisingly little was said about the problem of outside counsel costs. This wasn’t because the problem had gone away; from my reading of comments on stage and in conversations, it was because legal costs had ceased to be something to talk about and had become something to be dealt with. The simplicity and finality of that sentiment were unnerving. I asked an in-house lawyer to name one thing her outside law firms could do to make her happier. “Reduce their costs,” she replied. Fair enough, I said; should they do it by outsourcing, or by automating, or by — she cut me off. “I don’t care,” she said flatly. (Patrick J. Lamb reports a similar experience.) Continue Reading

The new leverage

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

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

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

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

The market doesn’t care

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Follow your clients through the recession

And now, your legal services marketplace update:

Got fear? Not everyone is ready to head for the fallout shelter just yet, and rightly so. But I think it’s fair to say that we’re not looking at just another slump here. We have an historic financial crisis (hopefully nearing its completion) likely portending a deep and prolonged recession, coming at a time when law firms’ business and service delivery models are already under unprecedented pressure. You don’t need to believe the apocalypse beckons to recognize that this is, at least, an extraordinary period of transition for lawyers and law firms.

If you want to get the best sense of where the legal industry is going, though, there’s really only one place to look: at clients. Never mind what they’re saying — they always say the same things — look at their circumstances and watch what they do. The extent to which clients’ needs are driving actual changes in their behaviour is the extent to which lawyers’ worlds will also change. Continue Reading

The new legal publishing niche: clients

Hey there, legal professional — looking for a career change in these uncertain times? I have a legal publishing niche to recommend to you. But first, some background.

This economic crisis has inspired some of the best legal blog writing I’ve seen in a while — urgent, direct, and relentlessly focused on communicating to readers exactly how serious a situation we’re in, and just how unique are the opportunities and threats lawyers face. If you haven’t been reading Patrick J. Lamb, Gerry Riskin, Dan Hull & Holden Oliver, Rob Millard, Susan Cartier Liebel, and the ACC blog the last few weeks, rectify that oversight. Click on these links and review what these commentators have been saying about the fundamental restructuring of the marketplace now underway, and why law firms of every shape and size need to respond in fundamental, game-changing ways.

What you’ll notice about many of these blogs and most of these entries is that they’re client-focused: that is, they either analyze the marketplace that buys legal services, or they explain the pressing and rapidly evolving needs of clients, or both. This is still a rarity in the blawgosphere: most legal blogs talk about developments in the law itself or address the business concerns of lawyers and law firms. Like most everything else connected with lawyers, most legal blogs are all about us. The image of the “client” that emerges from most law blogs is shaped by the perspective of lawyers — the client as a mysterious yet disadvantaged entity that needs lawyers’ help, makes demands on lawyers’ time, and pays lawyers’ bills.

But the most valuable and interesting legal blogs in the near future, like the few I’ve referenced above, will write from the perspective of, and serve the direct interests of, the client.  Whereas most lawyer blogs are created to explain the law (and promote the lawyer) to clients, these blogs will explain clients to lawyers — and that’s going to be a far more important service. They’ll paint in broad strokes, necessarily, since every client is different —  but they’ll still give lawyers powerful information about the drivers and priorities that lie behind every client interaction.

But there’s yet a further, still undiscovered publishing niche. Continue Reading

Repainting or renovating?

There’s repainting, and then there’s renovating. Innovation in the practice of law can take either of these forms, and while there’s nothing wrong with a fresh coat of paint or moving the furniture around, installing new support beams and ripping out the plumbing is a whole other order of commitment to change.

As a useful example of repainting, word from the UK is that 18 major law firms are getting together to establish a new “carbon footprint” protocol for their industry. The Lawyer reports that the “Legal Sector Alliance, a movement of law firms and organisations committed to working collaboratively against the climate threat, [will] provide law firms with a practical guide to adopting environmentally sustainable practices.”

Not meaning to discourage any sensible steps towards a better environment, and the firms deserve credit for promising to reveal footprints that could be embarrassingly larger than expected; the free market in saving face is a powerful force in a tightly knit profession like ours. But best intentions aside, this initiative will have a lot more of an impact on, say, marketing and community relations than it will on the fundamental business of these firms: serving their clients.

Clients are looking for something a little more substantive. Mike Dillon, GC of Sun Microsystems and occasional but engaging blogger, expressed as much in a post last month called simply “Finding Value.” Mike ticks off areas of needed reform in law schools and legal media, and acknowledges that clients need to step up, too. But law firms, he says,

need to understand every component of their operating expense and business model. What is the cost of attorney turnover in the firm? What are its core v. non-core technical strengths? Can the firm manage sub-contractors (i.e. other legal service providers) to provide more cost effective services to clients in non-core areas? Does the firm fully understand its customers and does it tailor its services to the customer’s specific needs?

These are the kinds of questions that start the kinds of conversations among lawyers and clients that we need. To that end, let me direct you to a very promising conversation just getting started: Continue Reading

The rise of good enough

Developments last week in the world of electronic discovery have gotten me thinking about matters of a weightier nature. The Wall Street Journal published an article about the rise of automated e-discovery services and the degree to which they’re eliminating the need for lawyers in this area (it’s subscriber-only, so I’m relying on the good graces of Carolyn Elefant at Legal Blog Watch, who provides some highlights).

New e-discovery tools, says the article, promise cost savings of more than 85% — something bound to elicit sweet hosannahs from clients, but perhaps rather different responses from lawyers. One such lawyer, a partner at Fenwick West, cites a cautionary tale of a client that decided to go the cheap route and handed over an e-mail archive search to its internal IT personnel. You can guess the result: disastrous disposal of necessary files and big money paid to the law firm to clean up the mess.

Now, there are two things worth noting about this example. The first is the dichotomy it suggests: either have the professional lawyers do the work or give it to the complete non-specialists, and no in-between. But in fact, there’s a lot in between, and some law firms are figuring this out. Ron Friedmann at Strategic Legal Technology brings us word that Dorsey & Whitney has launched its own e-document review service, at fixed prices to boot. As Ron says, this is less a challenge to e-discovery providers than it is to other law firms, who might have to start rethinking how their business models incorporate e-discovery.

But there’s another angle here, one that goes to a more foundational matter in the law. The example above presents a familiar, even archetypal warning to clients: engage a lawyer now to do the job right, or engage the lawyer later, for more money, to fix the mess you made by trying to do it on the cheap. You might even call this the Cardinal Principle of Lawyer Marketing: the short-term cost of hiring a lawyer is less than the long-term cost of going without one. We’ve all heard it, and many of us have used it, but few of us have examined its foundation or implications. Continue Reading

Podcast on conflicts of interest

Law21 was quiet for a week while I worked the Canadian Bar Association’s Canadian Legal Conference in Quebec City. Among the highlights for me was moderating a podcast on the CBA’s just-released Final Report of its Task Force on Conflicts of Interest. You can access the podcast by clicking the third link in the right-hand column on the CBA’s Conflicts Home Page.

The podcast, which runs less than 25 minutes, featured three members of the task force: Chair Scott Jolliffe, managing partner of Gowling Lafleur Henderson LLP, and members Gord Currie, EVP and General Counsel of George Weston Ltd., and Simon Chester, a partner with Heenan Blaikie LLP and fellow Slawyer. We talked about the report’s principal recommendations, the valuable Toolkit that accompanied it, and why conflicts matters so much to both lawyers and clients. Hope you find the program interesting and the report useful, no matter where you practise.

The Web is bigger than you think

A watershed moment is occurring at the Beijing Olympics — or more accurately, in the head offices of the broadcasters covering it. Online viewing of Olympic events has shot into the stratosphere — this Globe & Mail article on the subject uses terms like “shattering” and “unbelievable” to communicate the enormity of what’s happening. Here are some statistics to make the point.

CBCSports.ca is averaging two million page views a day. A year ago at this time, the site was getting about one million views a week. The CBC’s live streaming and video-on-demand services are receiving close to 250,000 hits daily. …

At NBC.com, it took only four days to surpass the entire Athens Olympics in page views. Beijing has 291.1 million views so far, compared with 229.8 million for all of Athens. On the first day of the Athens Olympics, NBC had 65,346 video streams. For Day 1 at Beijing, the number was 1.65 million.

The Olympics are the perfect webcast event — numerous events taking place simultaneously, each with its own devoted audience. In the past, networks had to choose the one event likely to garner the highest ratings and televise it, to the chagrin of the long tail of other events’ diehard fans. But with the web, the broadcasters can “televise” as many events at one time as they like on separate streamed web pages, with the added viewer bonus of reruns and replays on demand.

For the last few years, all the major networks have been poking around with the Internet like a new toy that they haven’t quite figured out how to use yet. The Olympics should prove to be the tipping point at which the networks (and their advertisers) realize an important truth: television is only one medium through which content can be delivered, and compared to the web, it’s a limited, inflexible, single-channel medium. The CBC’s Scott Moore reported a conversation with the IOC’s Jacques Rogge: “We both agreed that it is not the wave of the future. It’s the wave of the present.”

Is this still a blog about the legal profession? Yes, it is. And I think there’s an important lesson here for lawyers: we’ve all been thinking about the Internet too narrowly. Continue Reading

Could clients drive firms to do more pro bono?

Australia, the legal profession’s innovation laboratory, is busy delivering another dose of fresh thinking. The state of Victoria is requiring all law firms that take on legal work for the government to perform pro bono work as a condition of the retainer — specifically, to the tune of 5% to 15% of the total value of their government contracts (most choose 15%). According to an article in the May 2008 issue of the New South Wales Law Society Journal, the scheme is now being considered for introduction countrywide.

The idea is not universally popular. Opponents raise two main objections: that reducing pro bono to a commercial consideration undermines the altruistic nature of the work for both provider and assistee, and that it’s unfair to single out lawyers when no other suppliers of professional services to government face the same obligation. Supporters counter that the government is leading rather than mandating, that the requirement is far from onerous, that legal services are uniquely in need of pro bono provision, and that many law firms now take pro bono seriously as a fundamental element of the business, driving up its adoption throughout Victoria.

I think it’s a great initiative, especially because it seems like a work in progress. One of the firms involved in the program suggests two improvements if it goes Australia-wide: that the government increase its legal aid and community legal sector funding, to make clear that pro bono is not and never will be a substitute for legal aid; and that the government continues to be prepared to waive conflicts claims in pro bono cases involving the government as a party. Add these two elements, and this might be pretty close to a perfect system.

In fact, I think it’s exportable — and not just outside Australia. While it’d be great to see governments in other countries adopt this program, I don’t see any reason why large corporate clients couldn’t do the same thing. Continue Reading