The ethics of innovation

Earlier this year, a legal periodical called me up and asked my opinion of third-party litigation financing. As you might know, my view of this particular innovation (detailed here on three previous occasions) is not a wildly enthusiastic one, and I said as much, at some length. Shortly after the article was published, I was contacted by a representative of a litigation financing company, who invited me for coffee to discuss the industry and exchange some facts and opinions about it. Since I’m partial to new perspectives and sworn to coffee, I agreed.

In the event, two people from the company met me at the local Starbucks, and we had what I think was a good conversation. They were sincere, well-informed and reasonable, and I came away more favourably disposed towards their company, given what they described as their careful evaluation of the kinds of cases they take on. I learned some things I didn’t know (for example, litigation financing emerged in Australia, where contingency fees remain prohibited). They shared my views on the shortcomings of our present litigation system and they cared about improving access to justice, so there was certainly common ground between us. (You can see the “But” coming, I’m sure.)

But, for all that, I don’t think either side managed to persuade the other towards its perspective, and I suspect much of that was down to the irreconcilably opposed premises with which we approached the subject. I have a baseline aversion towards the encouragement of litigation, as I think we should do what we can to discourage it; they believed legitimate cases should have the chance to be aired before the courts. I have philosophical and ethical objections to disinterested third parties financially supporting private litigation in exchange for a share of the proceeds; they did not. I feel that the proliferation of third-party litigation financing would put an end once and for all to public funding of access to legal services, as governments would come to say that “the private sector can address that”; they said the type of commercial cases they support wouldn’t be eligible for public funding. So while our talk was cordial and informative, there was probably never much chance our minds would meet.

But as we were gathering up our cups to leave, a thought occurred to me (much like Oscar Wilde, I often think too late of smart things to say). Over the course of our conversation, my interlocutors had consistently referred to litigation financing as a way to “level the playing field” between impecunious plaintiffs and rich defendants. And of course, that’s a powerful concept, and who could argue with it? But something about it had been nagging at me, and I finally figured out what it was.

“What would happen,” I asked them as we stood to leave, “if third-party litigation financing was used not to level the playing field between two unequal parties, but specifically and intentionally to imbalance the playing field between two otherwise equal parties? Is there any reason it couldn’t be used for that purpose?” If we’d had another hour, we might have taken that thought in interesting directions, but time was pressing and we didn’t have the chance to explore it further.

A few weeks after this conversation, a man named Terry Bollea won a defamation and invasion of privacy lawsuit in Florida against a company owned by a man named Nick Denton. You might know the case better as Hulk Hogan’s $140 million verdict against Gawker for publishing sex-tape footage featuring Hogan in 2012. What became apparent soon after the verdict was that Silicon Valley billionaire Peter Thiel had financed the litigation as part of a feud stemming from Gawker’s outing of Thiel as gay in 2007. “It’s less about revenge and more about specific deterrence,” Thiel told The New York Times. Denton has since declared bankruptcy and Gawker has shut down.

I know it's hard to believe, kids, but Charlie Sheen was once a bankable movie star.

I know it’s hard to believe, kids, but Charlie Sheen was once a bankable movie star.

Now, there’s a lot to unpack here. I’m pretty much the last person who’ll defend the kind of “journalism” practised by Gawker, especially in its later years, when it seemed to lose any sense of what it was trying to accomplish beyond embarrassing people (I’m inclined towards Jeff Jarvis’s views on that subject). But it’s hard to escape the reality that a billionaire used the courts to kill a publication, not in a case that personally involved him, but in a case to which he had no connection other than sharing the plaintiff’s animus towards the defendant. There wasn’t even a financial return behind the “investment”: Thiel has been quite clear in interviews that Gawker’s destruction was not a side effect of the litigation, but its purpose. (And Thiel is now helping launch a litigation finance company himself.)

If you have any kind of rooting interest in a free press unafraid to uncover important things about powerful people and institutions, the Gawker case should thoroughly unsettle you. Gawker makes an easy villain; but suppose a local paper is pressing a powerful property developer a little too hard, or an online industry watchdog learns about a history of sexual exploitation by a major celebrity. Or go beyond media: if incredibly wealthy people can pursue personal vendettas by leveraging our dysfunctional litigation system to ruin someone’s life, and succeed, then I think we’ve completely lost sight of why we even have a litigation system in the first place.

But my larger point is this: we need to remember that every innovation is a double-edged sword, with the potential to do a lot of good and at least as much harm. We’ve always understood and accepted this in theory, but now we have to grapple with two additional, very practical considerations.

The first is that when considering any new innovation, no matter how highly sung its praises, we always have to ask ourselves: “What if bad people use it? What if reckless people use it? What if it were put to its least valuable and most destructive uses?” Because the worst case is going to happen — in law just as in the world at large. And we have to decide if, and to what degree, we’re morally ready to live with the consequences of that worst-case scenario — especially because we won’t always be the ones on whom those consequences will be visited.

I’m not looking to make litigation financing companies wear the goat horns for Thiel’s perversion of the justice system (from which they’ve striven to distance themselves). But I’d like to think the Gawker case would give the industry serious pause, and encourage it to reflect on whether it really is helping “turn the courts into casinos,” as its critics charge. If the industry chooses not to do that, then it will have missed a major opportunity and created significant future risk, not just for itself, but for a whole lot of other people.

And the second consideration is that innovation in the legal market has now progressed to the point that, in addition to principled arguments on these subjects, we now also have access to test cases. We can now start to see what the real thing looks like, and it’s not always pretty.

I don’t think most people in the litigation finance industry foresaw the Gawker case or would welcome it if they had, but there it is all the same. I doubt most of us who supported the ability of law firms to seek public financing foresaw or welcomed the smoking wreck of Slater & Gordon, but there it is all the same. I wrote, in that linked article, that the lesson to be drawn from Slater & Gordon’s catastrophic flameout is not to ban non-lawyer ownership, but to closely and carefully study its example. Conduct a thorough examination of both the first great success and first great disaster of public ownership, and learn whatever lessons are necessary to help the next firm to try this innovation get it right. I think we need to adopt that approach across the legal innovation spectrum.

I believe that selling shares in law firms should be allowed, because the ethical challenges have so far proven manageable (Slater & Gordon’s failure was caused by a business error, not an ethical one), and because law firms will need access to deeper pools of cash than partnership equity alone can provide. I also think that third-party litigation financing should be strongly discouraged, because at the end of the day, it’s really just an investment vehicle whose operating principle (give everyone equal access to enough cash to pay lawyers and continue litigating) would permanently entrench in the legal system its worst fault, the paramount and perpetual indispensability of money to any hope of obtaining justice.

Now,  I could be right or I could be wrong about both these things. I’ve had the arguments before and I’ll surely have them again. But we don’t have to debate this only in theory anymore. Let’s look at what’s actually happening and make whatever adjustments that honest and serious reflection demands.

I’m willing to take that approach to public financing of law firms after Slater & Gordon. I hope advocates for third-party litigation financing are willing to take that approach following Gawker. And I’d like to urge you, regardless of the legal innovation you favour, to do the same. “What’s the worst that can happen?” That line is usually read as a joke. Ask yourself that question in all seriousness — and in all seriousness, answer it.

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.

BigLaw levels up

My older brother used to give my teenaged self (with some justification) a hard time about playing Dungeons & Dragons. I eventually grew tired of the cracks about wasting time in a fantasy world, though, and I assembled what I considered a strong defence of the game. “D&D helps you build a lot of skills,” I said. “You develop your imagination and creativity; you practise your problem-solving abilities; you learn to collaborate with others and pool your unique resources in working towards solutions.” This triumph of rationalization clearly had “future law student” written all over it.

But here’s something else Dungeons & Dragons pioneered: It was one of the first games to reward a player’s success with greater abilities. You don’t gain powers throughout a game of Monopoly or Risk or Scrabble; you just amass more money or territories or points. But in D&D, every successful venture results in “experience points,” and when you reach a certain amount, your character moves up a level and gains new abilities as a result. Your capability increases as you gain experience — much, ironically enough, as in real life. It’s called “levelling up,” and today, so many games contain some variation on that theme that we take it for granted.

Of course, as you level up, your opponents become stronger and your challenges become greater — again, much as in real life. Large law firms, it seems to me, are now in the process of “levelling up” — through effort and experience, they’re forging successes that are increasing their effectiveness and helping them pull ahead of their peers. But as they do so, newer and tougher challenges are rising up to greet them — and it’s an open question whether the firms will be up to the task.

BigLaw has, in fact, been paying attention to what’s going on around it, and this should not really come across as a surprise. For all the grief that people like me enjoy giving them, large law firms are not actually hapless dullards stumbling backwards towards the edge of the cliff. They’re big operations with tons of money and some really smart people high in the org chart, and they’ve noticed that the legal environment is undergoing irreversible change that threatens their business model. Not every firm that recognizes its peril can do something about it; but those that see the challenge, and can execute to meet it, are more numerous than popularly believed.

A raft of examples has emerged just in the last few months to illustrate this. Prof. Bill Henderson highlights three large firms — Bryan Cave, Littler Mendelson, and Seyfarth Shaw — that have made great strides in technology, systematization, and workflow, and are revolutionizing the way they do business and serve clients.  The American Lawyer‘s Aric Press points out the rapid rise of pricing officers in BigLaw (76% of large US firms now have one) and its implications for changes to cost and profitability management, value definition, and partners’ pricing discretion. LeClair Ryan teamed up with LPO United Lex to create a Legal Solutions Center for doing routine, repeatable work with low costs and high systematization, just the latest in a line of firms to outsource straightforward work to a low-cost provider. Allen & Overy even commissioned and published its own report into the future of legal service delivery.

Ron Friedmann argues that far from being disrupted, BigLaw has begun to adapt to the new forces at work in the market: “Most US large firms continue to perform fairly well. While some firms do suffer, many thrive.” This undoubtedly is true. To a greater or lesser degree, many BigLaw firms have levelled up: they’ve learned, invested time and energy, and made adjustments that helped them improve their productivity and effectiveness. They should be commended for that, because it really is not easy to introduce change of any kind into large organizations with extremely diffuse decision-making authority and a deep ambivalence about innovation. [do_widget id=”text-7″ title=false]

But the thing about levelling up, of course, is that as your own powers increase, your quests become tougher too. Intermediate warriors don’t take on goblins and orcs anymore; they’re up against cave trolls and frost giants. It’s great that BigLaw is overcoming its initial challenges, because the next set will not only be tougher, they’ll be multi-dimensional. From my perspective, here are four forces with which large law firms will shortly have to contend:

The exponential growth of technology. I’m still relatively sanguine about the ultimate impact of technology on the legal sector — mostly because I’ve never yet had to reboot a lawyer. But it’s difficult to ignore the evidence that machines are becoming extraordinarily good at replicating many functions that firms traditionally assigned to their attorneys. Clio’s Joshua Lenon provided a useful overview of a panel at the most recent International Legal Technology Association meeting that featured insights from four accomplished legal tech leaders. Lawyerist’s Sam Glover explained Fastcase’s Bad Law Bot and its head-spinning implications for litigation. There are so many new applications now, from Shake and Fair Outcomes to Neota Logic and Picture It Settled, that it’s a matter of when, not if, tech will start seriously infiltrating BigLaw.

One name in particular keeps popping up in these conversations: Watson. The American Lawyer gave us a snapshot of what IBM’s machine-learning behemoth is now capable of (the version that won Jeopardy! could read 200 million pages in three seconds; the current iteration is 24 times faster). IBM’s GC, Robert Weber, believes Watson could pass the bar tomorrow. (Interestingly, he also believes non-lawyers shouldn’t be allowed to own law firms.) Watson’s potential legal applications are already emerging: a version called The Debater assembled arguments for and against banning video games based on a lightning-fast survey and analysis of existing content on that topic. Ron Friedmann described some reservations about the outlook for Watson in law; for my part, I think there are many more repositories of useful legal data than large law firms that would be willing to help create these tools. And when technology does finally penetrate BigLaw firms, one impact will be felt above all others:

The collapse of their compensation systems. Michael Mills of Neota Logic, a speaker on that ILTA panel, wrote an incisive article about legal technology and innovation, specifically about the one feature integral to law firms that blocks both these forces: the billable hour. “The elephant in the room is stamping and snorting and must be heard: Innovation destroys hours. Now, that’s bad wherever the majority of lawyers’ revenue is rates x hours. Every hour saved is a dollar lost. But it’s especially bad for law firms, and that is almost all of them, whose partner comp schemes set the income of individual partners with a formula that counts the individual partner’s hours, or the hours of her team. Because then she knows that she will be personally penalized for her own innovations.” Innovations reduce law firms’ inventory, the billed hours of their lawyers. But equally, innovations are inescapable. You can see where this is heading.

Technological automation, process management, and operational efficiency will all be essential to the ability of large firms to be profitable in the years to come. But virtually every new tool or system that increases a firm’s productivity reduces the time spent to complete a task, and “time spent” is the lifeblood of lawyer compensation systems. And as I wrote years ago, the traditional law firm simply can’t function without counting and maximizing hours; it’s built into their financial and cultural DNA. De-emphasize or remove time as a factor in productivity, and you remove the one card holding up the whole house. So law firms that hope to be both functional and profitable will have to find new, non-hourly ways to remunerate their people. I don’t know of a single BigLaw firm that’s even close to that point. Something’s got to give here — but it’s not going to be the market forces driving change. It never is.

The rise of colossal competitors. The legal market is at the precipice of unprecedented regulatory upheaval. Most everyone knows about the Legal Services Act and the licensing of more than 300 Alternative Business Structures in England & Wales over the last couple of years. Not everyone realizes that among the legal entities that have been authorized there are law firm businesses owned by a giant insurance company, a telecommunications provider, and a financial and consumer services company. Most significantly, three of the Big 4 accounting firms have considered or (in the case of PriceWaterhouseCoopers) already received an ABS licence. These are all entities that traditionally have retained large law firms or have referred work to them. Non-lawyer law firm ownership, already approved in Australia and Great Britain, has been endorsed by the Canadian Bar Association and will likely be considered by Canada’s largest legal regulator next spring. Sooner or later, at least one US jurisdiction will follow suit, and the world’s largest legal market will be changed forever. This is the future competitive landscape that BigLaw needs to start anticipating today.

Take a closer look at the accounting firms, because if there’s any potential new player in the market that should keep BigLaw’s managing partners awake, it’s this one. “Accountants aren’t kidding with ABS this time,” wrote The Lawyer‘s Catrin Griffiths earlier this year, and she zeroes in on exactly why BigLaw should be watching very carefully: “The accountants are after bread-and-butter commercial, employment, mid-level corporate, immigration, outsourcing and IP; it may not be bet-the-company stuff, but they create deep relationships with clients that can be leveraged.” It can be argued that the likes of Parabis and Co-Op and Slater & Gordon are focused on the consumer market and therefore safely distant from BigLaw’s hunting grounds (although Parabis evidently aims to move into the corporate market); the same can’t be said for “Big4Law.” Lawyers struggle with value billing; accountants advise their clients on it. A tiny handful of the world’s largest law firms generate $2 billion in revenue a year; as Catrin points out, PWC alone clocks in at $32 billion. If a fight does break out in this sector, it won’t be a long one or a fair one.

The emergence of client self-determination. In some respects, this might be the most significant new challenge for BigLaw to unravel, because it goes to the heart of law firms’ work supply chain. Many lawyers have already experienced a reduction in work and revenue from corporate clients, and the biggest reason has been insourcing: clients keeping a growing chunk of work inside the law department. “Over the past decade, the number of in-house lawyers has doubled in the UK. Now, one in five lawyers practises in-house. Over time, private practice has lost up to 20% of its market share to its clients,” writes Reena SenGupta in Legal Business. “Few private practice partners can pre-empt problems in the way their in-house counterparts can. … Where will their value be in the future? Outside of specialist legal knowledge that does not reside in the internal legal team or the ability to marshal bodies for a major matter (and the necessity for the latter is in question), where is their value-add?”

I wrote recently about how clients will become lawyers’ biggest competitors, and nowhere does this apply more than with corporate, commercial, and institutional clients. They have the unique combination of a strong impetus to manage their legal affairs better and the financial assets with which to make that possible. They are re-positioning themselves in their relationships with outside counsel, viewing BigLaw as just another resource rather than the default sourcing option, and they’re placing themselves at the centre of a new risk management ecosystem. Large firms, for the most part, have no idea what to do about this. They find it difficult to look at the world through clients’ eyes; they lack the necessary empathy. They know how to receive and perform legal work, not how to develop and manage the complex client relationships that produce work. This is an institutional skill, one that can be learned — but it’s much tougher than installing new software or even initiating legal project management.

BigLaw has seen and has begun to respond to shifts in the legal market, and kudos to those firms that have done this the best. But I want to make it clear to them that this process is not over, but rather is just beginning. Fundamental assumptions about their business models, their competitive environments, and their client relationships are all poised to shift dramatically over the next ten years, and it will require extraordinary effort, resilience, and leadership for them to adjust accordingly. Many firms have found it exhausting just to get this far, and I’m not sure how well they’ll respond to what’s coming.

It would be foolish to write off BigLaw, even given the enormity of these challenges: recall what I said earlier about what size, smarts, and money can accomplish. But, man — this is not going to be easy. Welcome to Level 2.

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.

Why law firms need R&D investment

Lawyers hardly ever talk about research and development. We might be the only major industry or professional sector that fails to do so.

Last year, total spending on R&D by the world’s 1,000 largest companies was about $638 billion, according to the Strategy& 2013 Global Innovation 1000 Study. The 10 companies that spent the most on R&D (from Volkswagen to Johnson & Johnson) shelled out a little less than $100 billion themselves. Five of the ten companies on that list were in the health-care industry. Typically, businesses invest about 3.5% of their annual revenues on R&D, a measure known as R&D intensity.

The commercial legal market generates something in the range of $300 billion in revenue annually (a figure that comes with some reservations). Applying a normal R&D intensity of 3.5%, we would conclude that law should be spending about $10.5 billion every year on research and development. The AmLaw 100 alone clocked in at around $77.4 billion in revenue, suggesting their R&D spend ought to be $2.7 billion. We all know, of course, that nothing like this is actually happening.

Money was spent on legal R&D in 2013 — but as Susan Hackett pointed out, it wasn’t spent by established by law firms, but by their suppliers and competitors in legal startups. A venture capital investment of $458 million is slightly more than 1% of total legal revenue; it’s not nothing, though it’s not a whole lot more than that. But preliminary estimates suggest 2014 will produce lower levels of outside investment in the legal industry. So if there’s going to be an imminent uptick in legal R&D, it will have to come from lawyers and law firms themselves.

Many lawyers have difficulty seeing how R&D would have any application to their businesses, probably because “R&D” conjures images of scientists and engineers in lab coats, conducting experiments in hopes of discovering some new chemical compound or medical miracle. But research and development is far broader than that: it refers to activities that a business undertakes in the hope they will lead to the development of new (or the improvement of existing) products, services, and procedures. It’s not limited to the scientific or manufacturing sectors at all.

How could a law firm conduct research and development? By considering possible new products and services for its market, or new ways in which its services could be created and delivered. Here are four types of R&D activities that law firms of any size could undertake.

1. New Products And Services: Think about emerging or overlooked possibilities for providing value to your firm’s current or desired markets. Look at it from the perspective of people and businesses within those markets, their needs and opportunities, and consider potential responses or solutions that you could offer. This isn’t a lawyer-centred “business development” exercise; it’s a client-centred “opportunities and solutions” exercise.

2. New Delivery Mechanisms: Brainstorm potential new client service protocols or enforceable firm-wide systems for client interaction. Envision new methods for delivering products and services online, directly over the Net. Could you package your firm’s expertise as an ongoing service? What delivery system changes would enhance the speed and convenience of service for your clients? What do clients wish law firms would change, but never do, about client service?

3. New Pricing Systems: Anything that truly moves your firm away from the billable hour is going to get clients’ attention. Effective pricing involves knowing your client, your competition, and your costs: what projects could acquire this information from the market or dig it up from within your operations? Identify the lawyers, practices, or client relationships most amenable to new pricing arrangements, and start coming up with experiments to try them out. (NB: Your compensation system will be affected, too.)

4. New Management Systems: There’s not a law firm in the world that couldn’t benefit from better processes and management practices. Rethink your assumptions around talent by exploring home-based or mobile workers and project lawyers, or by reconsidering your recruitment and training regimens. Study the potential use of project management on personnel, budgets and timelines. Could you harness your firm’s know-how to improve productivity or create value? Think of ways to reward people for good management.

Earlier this year, at a Legal Marketing Association conference, I delivered (along with Prof. Dan Katz of Michigan State Law’s Reinvent Law Lab) a day-long session on R&D to a group of law firm CMOs. The marketing directors were intrigued by the possibilities of law firm R&D, and in their breakout sessions, they came up with all sorts of great ideas and initiatives that could be planted and could blossom under such a program. [do_widget id=”text-7″ title=false]

But when we asked them to identify the internal obstacles to developing an R&D functionality, many CMOs wearily raised the same objection: the partners wouldn’t go for it. Research and development, by its very nature, is an investment in the future, a short-term expense made today in order to generate revenue and sharpen competitiveness in the medium and long term. Many law firm partners, fixated on their annual profits, have no interest in reducing their income today in the hope that their income tomorrow will be multiplied (and that goes double for any partner in his or her last few years of practice).

This is most likely true. And I can’t help but note this reluctance in the context of the growing debate around non-lawyer ownership of law firms. Virtually every company in the Global Innovation 1000 is publicly owned, with shareholders renowned for their insistence on steadily rising value — yet these same shareholders have no difficulty approving the expenditure of millions of dollars annually on R&D initiatives. They’re quite willing to forego some profitability today if it could help sustain and improve the company’s prospects down the road. Yet lawyers, supposedly the guardians of higher-minded professional objectives, prefer to empty the entire piggybank every year rather than divert a few coins to enhance the firm’s long-term competitiveness.

But happily, there are exceptions. Earlier this year, AmLaw 100 firm Akerman LLP announced the launch of an R&D Council, “dedicated to creating new offerings that advance the business of law and redefine service delivery models, jointly helping Akerman and its clients overcome future barriers to innovation and growth.” Akerman has a history of innovation-friendliness, but their efforts here should demonstrate that R&D is neither impossible for nor irrelevant to law firms.

Nor is R&D limited only to large firms. I remember reading (and if I can find the link, will provide better details) about one moderately sized firm that gathered its young associates together, gave them a chunk of non-billable time, and told them to come up with ideas about markets the firm could be serving tomorrow if it started investing the time and effort today. One of the many ideas brainstormed in that session grew to become one of the firm’s top practice areas. That wasn’t a systematic, budgeted and ongoing R&D functionality; but even as an ad hoc event, it demonstrates what can happen when a firm gives its lawyers the permission and the space to be creative about what they do and how they do it.

Law firms probably won’t break the R&D 1000 anytime soon, but they don’t need to, either. Asking every partner in the firm to take 99% or 98% rather than 100% of their annual draw, and putting that money towards a well-funded research and development director who reports progress quarterly to the firm’s management — that might be all it takes to get your firm’s R&D started. And that investment, in turn, might be all that keeps your firm relevant and competitive as the legal market continues to redefine itself in the years to come.

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.

Watershed: The CBA Futures Report

This morning, the Canadian Bar Association released the widely anticipated Final Report of its CBA Legal Futures Initiative, “Futures: Transforming The Delivery Of Legal Services In Canada.” I had the benefit of receiving an advance copy a few days ago, so I’ve had time to review the report and prepare some thoughts.

My primary thought is this: The CBA’s report constitutes a watershed moment for the legal marketplace in Canada, and possibly in North America. No document like this has ever been produced by a legal organization on this continent; the only reasonable comparison I can draw (albeit obviously not as groundbreaking) is Britain’s Clementi Report, released nearly 10 years ago. That’s how significant I think the CBA Futures Report could turn out to be: it has the potential to help usher in a new era in legal services on this side of the Atlantic, and to utterly remake the Canadian legal market in any event.

Here’s a link to the full report, one to its executive summary and 22 recommendations, and one to an article in the CBA’s National magazine outlining its major points. This post identifies what I think to be the report’s most important recommendations, with accompanying commentary. I won’t touch on every recommendation, just the ones that I think have the greatest potential impact.

A few key points, however, at the outset:

1. This Report is not CBA policy, not yet anyway: in order for that to happen, the report must be approved by the CBA’s Governing Council. Normally, if I recall my CBA procedures correctly, that vote would occur at the association’s next mid-winter meeting in February 2015. Council might adopt the report in its entirety; it might also adopt only some of its recommendations, and it’s possible (although I think very unlikely) it could reject the whole thing. The next several months of debate and discussion should help indicate which way this will go.

2. The CBA, in case you’re not aware, is solely a lawyer advocacy group. It has no regulatory function, although it frequently advocates in the public interest and makes suggestions to the provincial law societies, which do exercise the statutory regulatory role. So even if CBA Council adopts this report in its entirety, that still doesn’t change the governance of the Canadian legal profession. I imagine, however, that Canada’s 14 law societies might well consider the report to be persuasive evidence (especially in Ontario, where a similar committee is poised to deliver a report on ABSs next spring).

3. I had no input, in case you were wondering, into the direction or content of the Report (I worked at the CBA for 10 years, ending in 2009). I facilitated a #CBAFutures Twitter chat earlier this year, and I provided some informal advice about communications and social media approaches for the project the year before that, but that was the extent of my involvement: this report arrived as new to me as it is to you.

With those points in mind, here we go:

1. Flexibility in Business Structures

Lawyers should be allowed to practise in business structures that permit fee-sharing, multidisciplinary practice, and ownership, management, and investment by persons other than lawyers or other regulated legal professionals.

Nothing like starting with a bang, is there? The Futures Committee recommends a nearly complete liberalization of the regulations that govern lawyers’ business structures. MDPs aren’t all that dramatic a change anymore — they’re already available in some Canadian jurisdictions, albeit with various restrictions on non-lawyer control — but fee-sharing with non-lawyers is a major development, one that hasn’t received as much attention recently but that could have a significant impact on solo and small-firm practices.

But the big-ticket item — the one that will dominate headlines and conversations — is the recommended approval of law firm ownership, management, and investment by non-lawyers. Note that there are no qualifiers, here or elsewhere in the report, about controlling percentages of ownership. Scotland, for example, allows up to 49% non-lawyer ownership in order to maintain lawyer control, and British Columbia’s 2011 report on Alternative Business Structures spoke approvingly of this middle way. The CBA, by contrast, has gone all in — and wisely, I think. Minority non-lawyer ownership is neither fish nor fowl: too much control for traditionalists, but not enough control to actually change the way firms run, leaving nobody happy. If you’re going to start a revolution, you don’t bring toy guns to the barricades.

The CBA, to its credit, has struck at the heart of the argument over how lawyers should be permitted to structure their businesses. Recommendation #1 will be seen, correctly, as the crux of this report and the vanguard of the recommendations that follow, and it will be the main battleground between traditionalists and liberalizers. If this recommendation is defeated or watered down before adoption, this report loses much of its impact, and many of the subsequent recommendations, even if passed, will feel toothless. If it’s approved, everything afterward will change.

4. Alternative Business Structures

Non-lawyer investment in legal practices should be permitted, but only on a carefully regulated basis as follows:

[My summary of what look like the key conditions:

  • An ABS (along with its lawyers) is to be regulated exactly as a law firm would be, with the same fiduciary, ethical, candour, and conflicts obligations to clients as a law firm has, and it must advise clients solely in their interests;
  • Non-lawyers can deliver legal services if they’re effectively supervised and controlled by lawyers;
  • The ABS, its owners and its shareholders may not access privileged client information without express client consent and then only for the client’s benefit;
  • The ABS must purchase legal malpractice insurance no less than required for lawyers but increasing with the size of the ABS.]

None of these restrictions seems unreasonable to me: most seem simply to confirm that the level of regulatory scrutiny currently applied to law firms should be applied in equal measure to an ABS. That’s no small thing: the report might have recommended higher governance standards for ABSs, but it did not.

The requirement of lawyer supervision of non-lawyer legal service providers is one that is already applied within most law firms anyway, and while it’s possible this requirement might eventually prove unnecessary, there’s certainly no harm in adding it now, especially if it helps calm traditionalists’ fears (ditto for the insurance requirement).

5. Fee-sharing with and Referral Fees to Non-Lawyers

The FLSC Model Code Rules should be amended to permit fee-sharing with non-lawyers and paying referral fees to non-lawyers, subject to the following:

[My summary of what look like the key conditions:

  • Existing conflict, confidentiality, privilege, and candour rules fully apply;
  • The client must receive full disclosure of, and discuss with the lawyer the relationship with, the fee-sharer and of the shared fee, which itself must be fair, reasonable, and fully accounted; the fee cannot be contingent and the referral cannot be “exploitive”;
  • The lawyer and client must discuss client expectations arising from the referral and mutually agree on the basis of the retainer.]

This recommendation should be most relevant and useful to solos and small-firm lawyers, because it should provide them with alternative sources of revenue (and giving firms access to novel financing sources is one of the main purposes of liberalization). What I like best about this recommendation, though, is that it brings out into the open all the fears and suspicions that lawyers have always carted around concerning fee-splitting with the dreaded “non-lawyers,” and it forces us to confront them head-on.

It’s a (generally unspoken) article of faith among traditionalists that fee-sharing with non-lawyers inevitably “corrupts” the legal profession, although to my knowledge, no one has established this belief through either sound argument or specific examples. I’d listen to those arguments if they were forthrightly made and stood up to scrutiny; but rarely is either the case. This recommendation reads like a refutation of lawyers’ unconscious assumption that non-lawyers are fundamentally less moral and ethical than we are; I look forward to hearing someone argue that assumption explicitly, in public.

6. Delivery of Non-Legal Services by MDPs and ABSs

MDPs and other forms of ABSs should be permitted to deliver non-legal services together with legal services on the basis that [the same client , confidentiality, and ethical protections that we’ve encountered already, but with this interesting addendum:] If the public interest demonstrably requires that some non-legal services should not be provided together with legal services, the rules should so provide. Otherwise there should be no restrictions. [do_widget id=”text-7″ title=false]

These new entities probably will want to deliver non-legal services as well, so it makes sense to start creating a regulatory framework for that (although it will be very interesting to see how lawyers choose to define “non-legal services,” and what impact that definition might have on subsequent attempts to enforce the “unauthorized practice of law”).

But that last sentence is intriguing: it sets up a presumption in favour of the authorization of non-legal services delivery, overcome only by a demonstrable public interest. The report could have created the opposite burden: no non-legal services, unless the ABS can demonstrably show there is no threat to the public interest. The report chose not to do so.

8. Compliance-Based Entity Regulation

Compliance-based regulation of legal practices should be adopted to promote ethical best practices as a supplement to existing rule-based regulation of individual lawyers. Under compliance-based regulation:

  • law firms would be required to register with the law societies;
  • law firms become regulated entities upon registration;
  • law firms would be required to designate a lawyer with whom the law society may deal on behalf of the law firm and who is responsible for overseeing law firm regulatory compliance; and
  • regulation of law firms would include the requirement of supplementary compliance-based regulation to promote ethical best practices.

Now, this is interesting. As mentioned above, the CBA itself has no regulatory powers, and the law societies have always politely made it  clear that such issues are entirely within their jurisdiction. But compliance-based entity regulation is an idea whose time is rapidly approaching, if it’s not already here: Australia and England have already adopted it to varying degrees, and some Canadian law societies are taking a very close look at it. The Nova Scotia Barristers’ Society, in particular, is making groundbreaking progress in this direction, and Ontario’s ABS Working Group has also explored the issue. Approval by CBA Council of this regulatory approach would be interpreted as a strong vote of confidence in this direction and could signal a tipping point towards its widespread adoption in Canada.

10. Effective Supervision of Non-Lawyers

The FLSC Model Code Direct Supervision rule should be revised to require effective supervision rather than direct supervision. …

This recommendation, previewed in #4, goes on to explain and qualify this approach in some detail, but the key distinction has already been made: substituting “effective” for “direct” supervision. The practical outcome is to relieve lawyers of the need to hover over their non-lawyer employees, monitoring or checking everything that they do, which “direct supervision” implies. “Effective” suggests that as long as there are systems and procedures in place that work to maintain acceptable standards of conduct and activity by non-lawyers, the lawyer need not concern himself or herself with more than the normal supervisory process applied to trusted colleagues of any description.

19. Structured, Rigorous and Consistent Pre-call Training

There should be a structured, rigorous, and consistent approach to pre-call training to ensure new lawyers have all the skills and knowledge required to practise safely and effectively.

This looks like a reference to the struggling articling system, which is in the throes of upheaval and can’t be asked to function much longer as a de facto competence qualification process. The key word here is “training,” which is quite a different concept than “experience,” the usual way in which articling is described. Articling is indeed a great way to “experience” what it’s like to be a lawyer; but that’s not the same thing as being given “training” in how to be a lawyer. I wonder if this isn’t a backhanded vote of confidence for Ontario’s Law Practice Program, which could offer an alternative qualifying route to articling, one that emphasizes “training” over “experience.”

21. Parallel Legal Programs

Educational providers should consider creating parallel programs in areas such as legal technology, in college or other environments, or incorporated into law school education, to educate and train new streams of legal service providers which may include lawyers.

Many of the recommendations in this report touch on legal education, but they’re not nearly as sweeping as those related to the regulation of lawyers and their business structures. Perhaps that’s an acknowledgement that the CBA, like other organizations, isn’t in a position to bring about any sort of change in law schools, no matter how much such change might be needed and desired. But still, the report has no difficulty stepping directly into the law societies’ regulatory back yard, so one has to ask why a similarly bold incursion wasn’t made onto law schools’ lawn.

In any event, this is an excellent suggestion, one that law schools should rush to explore and perhaps implement. It’s increasingly obvious that new legal professionals with innovative skill sets and job descriptions will grow in the years to come, at the expense of traditionally educated law students. Law schools looking for a growth area should already be drafting curricula for Legal Knowledge Engineers, Legal Process Managers, and the like — before someone else does. There are now more than 5,000 trained paralegals in Ontario, not one of whom received his or her paralegal training from a law school. It would be a shame for the law schools to miss the same boat twice.

22. Continuing Professional Development

Continuing professional development should be designed to meet lawyers’ needs through the stages of their careers and reflect identified and emerging client needs. Legal regulators should adopt consistent outcome-based national standards for CPD. Research should be undertaken to measure any link between quantity or input-based CPD and competence.

This is the report’s final recommendation, and it caught me by surprise. I’ve written before about the fundamental problems with how CLE is mandated and delivered, especially the problem of demonstrating its effectiveness. This recommendation tackles these issues and more, declaring that CPD’s purpose is to meet the evolving needs of lawyers and clients (which reads to me like a call for more practice- and client-related information and training), that there should be CPD standards grounded in practical outcomes, and that the assumption that traditional CPD correlates with competence should be tested (that last point, if studied and debunked, could change CPD worldwide). Everyone will have their own rooting interest for one of these recommendations; this is mine.

As mentioned, I’ve only highlighted some of the report’s recommendations; others might strike you as more significant, and you might have a different take on the ones I’ve explored. If so, let us know what you think in the comments. I truly have no idea if CBA Council will approve this Report, partially or in its entirety, and whether such approval would prompt one of more law societies to implement some of these recommendations through regulatory review. The Report has only just entered the public sphere, and the forthcoming commentary and conversations should be fascinating.

But I go back to my opening assessment: I’ve seen a lot of reports from a lot of organizations about “the future of law,” and I’ve never seen one as powerful, wide-ranging, and apparently serious as this one. Several U.S. sates, as well as the American Bar Association (through its new Commission on the Future of Legal Service Delivery) are considering many of the issues highlighted above; I can’t help but think that this report could be cited as persuasive authority by those who favour (as I do) the liberalization of legal market regulation and legal service delivery. No matter what changes actually result from this report, its release changes the conversation about legal regulation in North America.

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 failure of legal innovation

Okay, I admit: that was a pure linkbait headline. Not quite as bad as 17 Heartwarming Photos That Will Restore Your Faith In Humanity, but still, I couldn’t pass up the opportunity to draw in people who might be thinking (hoping?) that I’d given up on innovation in the legal market.

But the headline isn’t a complete fraud. In fact, you could consider this post as a necessary companion to An incomplete inventory of NewLaw, which generated a great deal of interest and enthusiasm last week. Scores of new law firms, businesses, and technologies are emerging in this dynamic market, generating justifiable excitement. Ron Friedmann led a discussion this week on Twitter that estimated the percentage of the corporate legal market that NewLaw is carving off — it may be quite small, but it still translates into a whole lot of money in a very short period of time.

Nonetheless, it’s precisely now, when legal innovation seems to be really taking off, that we need to remind ourselves how fragile and fraught the startup environment really is. A thousand flowers may well be planted in the legal marketplace; but hundreds will never bloom.

An excellent illustration of this idea can be found in a recent James Suroweicki column in The New Yorker. “Epic Fails of the Startup World” is a sober pail of cold water dumped onto the frenzied fires of innovation. “We live in the age of the startup,” Suroweicki writes, but this Cambrian explosion of innovative new businesses is occurring contemporaneously with a mass extinction: failed startups overwhelmingly outnumber successful ones.

The reasons behind these astonishingly high failure rates should give legal entrepreneurs pause: it appears that most startups suffer from a massive overabundance of misplaced confidence, made worse by a startup culture that has come to lionize failure as the noble condition precedent to success. There’s no question that failure is indeed a condition precedent to success in the startup world. But far more frequently, failure is just a condition precedent to more and bigger failures. Serial entrepreneurs, according to a German study, are actually more failure-prone than first-time innovators.  [do_widget id=”text-7″ title=false]

The upside of this phenomenon is that the extremely few successes that emerge from the startup world deliver disproportionate benefits in economic and social terms: one LinkedIn or Uber is worth many Pets.coms. “We’ve built a whole system on unrealistic expectations,” says Suroweicki. “Because we don’t know how to identify good companies in advance, investors end up funding lots of them in the hope that a few will hit it big. … In the delusions of entrepreneurs are the seeds of technological progress.”

Remember that line you were given on your first day of law school? “Look to your left, look to your right, only one of you will be here in five years”? Imagine you’re in an auditorium with 100 other students and the speaker says, “Only one of you in this room will make it.” That’s a decent approximation of the odds facing startups. It’s only the bullheaded optimism of the entrepreneurial spirit, as well as the outsized rewards awaiting the rare winners, that keeps the system going, to everyone’s benefit.

We should expect the same thing to happen to NewLaw. In fact, it’s already happening. England & Wales has been described as the world’s legal laboratory; well, some of that lab’s experiments have already fizzled out. Conveyancing ABS In-Deed Online gave up the ghost last summer, sold for a mere one pound after arguably hitting the markets too early. Stobarts Barristers went the way of all flesh last month, perhaps confirming that a trucking company might not have been the best platform upon which to launch a law firm. And Co-Op Legal Services, the early heavyweight contender of consumer law ABS (and my personal rooting favourite) might not be dead, but there’s reason to worry that it might simply be nailed to its perch.

More failures and disappointments will follow. Some innovations will fail because they were based on a bad idea, some will fail because of bad execution, and some will fail because of bad luck; but they’ll all come to the same end. This is not a jab against NewLaw and legal startups, or a red flag on any specific entity; it’s simply the natural outcome of a marketplace law. There are nearly 100 entries on my NewLaw list, and probably scores of others I haven’t yet come across; they can’t all be lucky exceptions to the rule against startups.

If anything, the recent tsunami of cash investments in NewLaw might be just as much a sign of concern as of confidence. Josh Kubicki, the clear thought leader in the legal startup world, reported $458 million invested in legal tech startups in 2013, adding that 2014 is ahead of last year’s pace. Funding round announcements in the tens of millions of dollars aren’t routine quite yet, but we’re getting there. Is this a sign of the tremendous promise and potential of legal startups? Almost certainly. But it might also be a sign of vast amounts of money burning holes in the pockets of angel investors and searching for the next shiny thing. It might be, in the famous words of Alan Greenspan, a certain degree of irrational exuberance.

I wanted to note these ideas for a couple of reasons. One is to slightly temper the commendable enthusiasm inside and around the legal startup world, to remind participants in this genuinely exciting market that the risks rival or outnumber the rewards — it’s a narrow path to glory, and the drop on either side is steep. But the other reason, and I think the more important one, is to counter the inevitable arguments of the skeptics and cynics that will issue, in a few months’ or a few years’ time, standing over the corpse of some high-profile NewLaw entity and proclaiming that there was never anything here but hype and snake oil. That’s simply not the case.

Failure is built into innovation. It’s a feature, not a bug. You can choose, if you like, to glorify failure as a critical rite of passage on the path of enlightenment; like any heady drink, that’s fine in moderation, though it’s fatal in stronger doses. But you can also choose to revile failure, to loathe it and shun it and attach shame to those who experience it. This is the lawyer’s approach to failure, and it’s a leading reason why so little change has occurred in the traditional business model. We’re not just risk-averse as lawyers, we’re embarrassment-averse: we fear the self-inflicted humiliation of falling short. That’s why the schadenfreude felt by many lawyers when a legal innovation fails is palpable: we believe the innovator’s fall confirms the wisdom of our own reticence.

Rather than glorifying or reviling failure, however, I suggest we simply accept it as a perfectly natural part of doing business in a turbulent market. As the legal profession is pulled deeper into that turbulence, failures will mount, and they’ll be far more common among those who tried than among those who shied away. But the rewards will also be much larger and more numerous among the innovators than among the laggards. You don’t have to love failure. But I do recommend you get a lot more comfortable around it.

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.

An incomplete inventory of NewLaw

So I was asked to give a presentation about “NewLaw.” No problem at all — aside from the minor, niggling detail of figuring out what “NewLaw” is supposed to be.

Like other terms in vogue within the legal profession (cf. “non-lawyer”), we seem to understand better what “NewLaw” isn’t than what it is. George Beaton of Australia, who has written more than anyone else on this subject, describes the NewLaw business model as the antithesis of the BigLaw model, and that’s certainly true. For my purposes, though, I was inclined to cast the net a little more widely — to encompass not just law firm models, but also new legal talent combinations, legal service managers, and technology that both changes how lawyers practice and places the power of legal service provision in clients’ hands. So I decided to use “NewLaw” to describe any model, process, or tool that represents a significantly different approach to the creation or provision of legal services than what the legal profession traditionally has employed.

With that definition and goal in mind, I set out to catalogue the genus “NewLaw” as best I could. What I wound up with was two broad categories, six sub-groups, and a whole bunch of exceptions. I thought I’d share the lot with you, partly because I thought you might be interested, and partly because I’d welcome your suggestions for supplementing the list with new entries, transferring an entry into a different category, expanding upon the disclaimers, and generally broadening and deepening the conversation. This is not meant to be a definitive inventory of “NewLaw.” It’s merely my attempt to understand the term better and identify at least some of its manifestations in the market.

First, the exceptions and disclaimers.

1. Several innovative legal companies and technologies aren’t on the list, but only because I think their primary focus is the marketing or management of law practices, rather than the creation and delivery of legal services. So I set aside the growing number of practice management support companies like ClioCaseTrek, Curo Legal and Rocket Matter, as well as marketing, management, and business development services like Avvo, DirectLawLawDingo, LawGives, FlatLawLegati Law and UpCounsel, although they’re certainly in the NewLaw neighbourhood (and if you think they should be in the NewLaw community itself, let me know why in the Comments). [do_widget id=”text-7″ title=false]

2. I also decided not to include e-discovery providers, but mostly because I’d have been here all week cataloguing all the players in this market. Also, while there’s no question it’s had a serious impact on how litigators do their job and sell their time, I might argue that e-discovery is increasingly accepted as part of litigation and isn’t all that “New” anymore. Similarly, predictive coding (or more accurately, binary classification) is a warp-drive engine for e-discovery and many other emerging legal functionalities; the whole area of legal machine learning promises to be extraordinarily disruptive. But aside from a few firms that made the list, I was hard-pressed to think of many clear leaders in this area. Again, I’d welcome your recommendations.

3. I really wasn’t sure where to put LegalZoom and Rocket Lawyer in this list. They’re clearly “NewLaw” leaders and must be included, even if they’re frequently (and wrongly) described by lawyers as legal technology companies. They provide a sort of hybrid combination of legal documents available online and networks of affiliated law firms that supplement the documents with higher-value services (Jacoby & Meyers, which is listed below, could also fit within this category). Given that LegalZoom is frequently challenged by state bars and that Rocket Lawyer presumably also gets dirty looks from legal regulators, we might also refer to these enterprises as the NewLaw strike force.

4. Also not making the cut: BigLaw online legal services (Ron Friedmann’s list is essential, but I’m not sure how many of these entries are game-changers), law school-based entities (Reinvent Law, LawSync, and Law Without Walls are still all worth your attention, though), and some true category killers that just haven’t reached a critical mass yet (say hello to accountants practicing law).

5. I repeat: this list neither pretends nor aspires to be exhaustive. You may have a fascinating legal startup that I’ve never heard of, or that (to my mind) hasn’t gained enough traction yet to merit inclusion here. But if you belong to a small or midsize firm that’s pricing everything with fixed fees or selling through online delivery, or if you’ve launched a legal technology offering that’s changing the way legal services are produced or obtained, by all means identify yourselves in the Comments section.

6. A final note to startups: in no way does this post mean I can give you useful feedback on your product or service, because I very likely can’t. I was a liberal arts major for a reason. This really is just an attempt at a “NewLaw” catalogue, not a stealth advertisement for consulting services.

With all that out of the way, we can move to the actual lists. I ended up putting all the NewLaw entities I could find into two broad categories and six sub-groups:

1. Aligning Human Talent with Legal Tasks

  • New-Model Law Firms 
  • Project/Flex/Dispersed Legal Talent Providers
  • Managed Legal Support Services

2. Applying Technology to the Performance of Legal Tasks

  • Tools To Help Lawyers Do Legal Work Differently
  • Tools To Help Clients Resolve Disputes Directly
  • Tools to Help Clients Conduct Their Own Legal Matters

Of  course, many of the tools and enterprises listed below overlap to some degree with other sub-groups and categories. There are very few NewLaw human enterprises that don’t make use of technology and very few NewLaw technologies that don’t involve human application; I tried to position each entry under the heading that made the most sense. (The one-line descriptions are taken from the entities’ own websites or materials; the parenthesised jurisdiction is where the entity is headquartered.)

1. Aligning Human Talent with Legal Tasks

A. New-Model Law Firms 

  • Brilliant Law – “Legal advice and expertise you can trust, at prices your business can afford – the fixed price legal services solution for you and your business.” (UK)
  • Clearspire – “We offer a complete, value-driven solution for outsourcing complex legal matters … a radically new and efficient law firm for the 21st century.” (US)
  • Cloudigy Law – “A cloud-based intellectual property & technology law firm.” (US)
  • Co-Op Legal Services – “Our legal team provides confidential help, exactly the level of advice and support you need with fixed fee pricing for most services.” (UK)
  • Gunner Cooke – “A boutique corporate law firm with one, clear vision: to challenge, improve and evolve the way legal services are provided.” (UK)
  • HiveLegal – “Law firm which improves the experience for our clients, our team and our network.” (Australia)
  • Hunoval Law – “A premier law firm for default servicing clients. Our dynamic leadership leverages cutting-edge proprietary technologies and Six Sigma process analysis.” (US)
  • Jacoby & Meyers – “It’s our goal to make the legal system more accessible and more affordable for everyone, and we’ll evaluate your case or legal matter for free.” (US)
  • Justice Cafe – “We are striving to bridge the justice gap by dishing up affordable legal help in our communities.” (US)
  • Keystone Law – “A dispersed business model, with senior solicitors working from satellite offices, supported by a central London office.” (UK)
  • LegalForce – “A modern progressive law firm based in Silicon Valley with over 23,000 clients worldwide.” (US)
  • Marque Lawyers – “We started our firm with the desire to practise law in a new and better manner, and in particular to do away with the business of charging for legal services on the basis of the time spent doing it.” (Australia)
  • Potomac Law – “We are able to offer clients exactly what they are seeking: sophisticated legal advice from knowledgeable attorneys at attractive rates.” (US)
  • Quality Solicitors – “A group of modern, progressive law firms spread across the UK, each one chosen because their clients tell us that they deliver great customer service.” (UK)
  • Riverview Law – “We deliver fixed-fee legal advice for businesses of all sizes. We are changing the way businesses use, measure and buy legal services.” (UK)
  • Salvos Legal – “We provide quality commercial and property law advice on a paid basis. However, all of our fees fund our ‘legal aid’ sister firm. Both are wholly owned by The Salvation Army.” (Australia)
  • Seyfarth Lean – “A distinctive client service model that provides a different way of thinking about and delivering legal services.” (US)
  • Slater & Gordon – “A leading consumer law firm in Australia with a growing presence in the UK consumer law market. We employ 1,200 people in 70 locations across Australia and 1,300 people in 18 locations in the UK. ” (Australia)
  • VLP Law Group – “We provide sophisticated legal advice in a wide range of practice areas, but our overhead is low, our staffing lean, our fees flexible and value-driven.” (US)
  • Winn Solicitors – “We are national road traffic accident specialists. With Winns, you have no excess to pay.” (UK)

B. Project/Flex/Dispersed Legal Talent Providers

  • Advent Balance – “A firm that combines the expertise of outside counsel with the best qualities of a sophisticated in-house team.” (Australia)
  • Avokka Virtual GC – “Virtual counsel. Real results. Shift your thinking about legal counsel. Change the way you do business.” (Canada)
  • Axiom – “A 1,000-person firm, serving nearly half the F100 through 12 offices and 4 centers of excellence globally.” (US)
  • Bespoke Law – “A network of experienced lawyers who are available to provide clients with tailored support without watching the clock.” (Australia)
  • Cognition – “A team of highly experienced and skilled lawyers offering first-class business legal counsel either on-site or off-site, on a flexible, as-needed basis.” (Canada)
  • Conduit – “We pride ourselves on providing knowledgeable and effective legal counsel to address your needs as they emerge within your business.” (Canada)
  • Custom Counsel – “We are a nationwide collective of over 100 experienced attorneys who provide project-based legal services to other attorneys.” (US)
  • Daily General Counsel – “We come to your place of business for a full day and help you to solve your most pressing legal-related business problems.” (US)
  • Delegatus – “We have reinvented the law firm business model for you.” (Canada)
  • Eversheds Agile – “We meet a demand by clients for temporary, high-quality legal professionals that provide peace of mind and a link to an international law firm.” (UK)
  • Fondia – “A strategy that breaks with traditional law firm culture to transform the experience of clients and staff.” (Finland)
  • Halebury Law – “Your external in-house lawyers – offering clients senior ex in-house lawyers on a flexible basis.” (UK)
  • Intermix Legal – “Experienced freelance attorneys providing project-based legal support services to law firms & solo practitioners.”
  • Lawyers On Demand – “You can flex the size and capability of your team just when you need to.” (UK)
  • Paragon – “We provide embedded attorneys on a project basis to assist with overflow work, hiring gaps, interim backfills and special projects.” (US)
  • Pinsent Masons Vario – “We are a hub of freelance legal professionals who are not just technically skilled, but have the personality and drive to ‘fit right in’, to add value from day one.” (UK)
  • The Posse List – “We post document reviews, paralegal positions, forensics positions, litigation support positions, project management positions, compliance positions, general counsel/assistant general counsel positions – pretty much everything across the legal employment field.” (US)
  • Project Counsel – “We post European, Asia Pacific and Persian Gulf based document reviews, paralegal positions, forensics positions, litigation support positions, project management positions, compliance positions, law firm associate positions, and general counsel positions.” (Belgium)
  • Proximity Legal – “A leading provider of onsite legal, procurement and work health and safety services to the government sector.” (Australia)
  • VistaLaw – “A global team of former in-house attorneys with broad experience in providing legal support and advice to international companies.” (UK)

C. Managed Legal Support Services

  • Elevate Legal Services – “A global legal service provider helping law firms and corporate legal departments operate more effectively.” (US)
  • LeClair Ryan Legal Solutions – “We provide a wide range of support services and incorporate best-in-class technology and quality control processes which will be uniquely integrated into the law firm’s litigation and transactional practice areas.” (US)
  • MiamiLex – “A revolutionary alliance of the School of Law at the University of Miami and UnitedLex, a leading global provider of legal support and technology services.” (US)
  • Novus Law – “We provide legal document management, review and analysis services for lawyers that are measurably more accurate, faster and less expensive.” (US)
  • Obelisk Legal Support  – “We provide flexible, affordable and quality support for in-house legal teams and law firms.” (UK)
  • OnRamp Apprentice – “We hire recent law grads to work on large scale ‘contract genome mapping’ projects.” (US)
  • Pangea3 – “The global leader in legal outsourcing. Our LPO provides comprehensive legal services to corporate lawyers and law firms.” (US)
  • Radiant Law – “Outsourcing, IT, commercial contracts from negotiations to disputes. We bring together legal judgement, process and technology. ” (UK)
  • United Lex – “The global leader in legal services outsourcing, provides litigation, contracts and IP services to corporations and law firms.” (US)

2. Applying Technology to the Performance of Legal Tasks

A. Tools To Help Lawyers Do Legal Work Differently

  • AAA ClauseBuilder – “‘Designed to assist individuals and organizations develop clear and effective arbitration and mediation agreements.” (US)
  • BrightLeaf – “A technology-driven service that automates the entire process of abstracting information from all your contracts for upload to your CMS or for use with our abstraction analysis tool.” (US)
  • CaseText – “Judicial opinions and statutes are annotated with analysis by prominent law professors and attorneys at leading firms, giving you unique insight. And everything is 100% free.” (US)
  • DealStage: “Enables attorneys and transactional professionals to better manage the deal process lifecycle from drafting to closing.” (US)
  • ClearAccess IP – “Serving the patent marketplace by lowering transactions and streamlining data management at the prosecution level.” (US)
  • Diligence Engine – “Technology-enhanced contract review: faster and more accurate.” (Canada)
  • Judicata – “Mapping the legal genome to help you better understand the law.” (US)
  • Jurify – “We harness the collective genius of legal titans to deliver a complete set of resources on legal topics in one quick search.” (US)
  • KM Standards – “Our patented software allows you to build model forms from your own agreements, audit entire contract sets, and quickly review incoming contracts.” (US)
  • Koncision Contract Automation – “A subscription-based service providing lawyers with document-assembly templates for business contracts.” (US)
  • Legal Systematics – “We deliver automated document drafting programs and other advanced knowledge tools for making legal work more efficient.” (US)
  • Lex Machina – “We provide legal analytics to companies and law firms, enabling them to craft successful strategies, win cases, and close business.” (US)
  • Littler CaseSmart – “A case management solution that combines a Littler-developed proprietary technology platform with rigorous quality assurance measures.” (US)
  • Mootus – “We help law students and lawyers build skills, reputation and knowledge for free through open, online legal argument.” (US)
  • Neota Logic – “We transform expertise into answers and action.” (US)
  • Ravel Law – “Data-driven legal research and analytics.” (US)
  • Sky Analytics – “Helps reduce legal spend, control legal costs and benchmark legal spend.” (US)
  • TyMetrix – “The leader in bringing advanced technologies to critical dimensions of legal transactions and analytics.” (US)

B. Tools To Help Clients Resolve Disputes Directly

  • CleanSplit – “An easy-to-use tool that allows divorcing couples to divide their property without confrontation while saving time and legal fees.” (US)
  • Fair Outcomes – “Provides parties involved in disputes or difficult negotiations with access to newly developed proprietary systems that allow fair and equitable outcomes to be achieved with remarkable efficiency.” (US)
  • Fixed – “The easiest way to fix a parking ticket.” (US)
  • Modria – “The world’s leading Online Dispute Resolution platform.” (US)
  • Picture It Settled – “Using neural networks to examine the behaviour of negotiators in thousands of cases, we can predict what an opponent will do, thereby saving time and money while optimizing settlements.” (US)
  • Rechtwijzer – “Rechtwijzer 1.0 was … an appropriate, trustable legal helping hand that would assist people throughout their conflicts. [Rechtwijzer 2.0] enhances its services from diagnosing and referral into dispute-solving.” (The Netherlands)
  • Resolve Your Dispute – “A self-help online tool for consumers to settle disputes with a business.” (Canada)
  • Road Traffic Representation – “We provide you free expert advice to help you with your motor offence, from speeding fines to driving without insurance.” (UK)
  • WeVorce – “Divorce is more than a legal problem. … You’ll come out with the necessary legal documents as well as a lifetime of tools, knowledge and agreements as you begin again.” (US)

C. Tools to Help Clients Conduct Their Own Legal Matters

  • A2J Author – “A software tool that delivers greater access to justice for self-represented litigants by enabling non-technical authors from the courts, clerk’s offices, legal services programs, and website editors to rapidly build and implement customer friendly web-based interfaces for document assembly.” (US)
  • Docracy – “The web’s only open collection of legal contracts and the best way to negotiate and sign documents online.” (US)
  • EverPlans – “We provide guides, resources and a platform to help you create a plan that contains everything your loved ones will need if something happens to you.” (US)
  • Fair Document – “You get all your necessary estate planning documents completed quickly, and our streamlined process of working with an attorney affords peace of mind.” (US)
  • Iron Tech Lawyer – “A competition held at Georgetown Law, where student teams show off apps built in our Technology Innovation and Law Practice practicum.” (US)
  • Law Help Interactive – “Helps you fill out legal forms. Answer a series of questions and print your legal form. The forms are free and have been created by nonprofit legal aid programs and courts.” (US)
  • Lexspot – “Our online platform … makes the convoluted and expensive immigration process easy and affordable. ” (US)
  • Peppercorn – “Create legal agreements, in multiple languages, in just minutes.” (Italy)
  • Probate Wizard – “Probate is daunting. We make it simple. … the most advanced DIY probate system in the UK.” (UK)
  • Shake – “We strive to combine the simplicity, convenience, and collaborative spirit of a handshake with the protection of a legal agreement.” (US)
  • Smart Legal Forms – “Designed for US consumers and small business who want to resolve their legal problems at the lowest possible cost.” (US)

Some closing observations:

1. A disproportionate number of new legal talent arrangements are found outside the US (especially in England & Wales), while a disproportionate number (nearly all of them, in fact) of technology solutions are found inside the US. I attribute the former to more liberal regulatory regimes in other jurisdictions and the latter to the enormous amounts of venture capital available within the United States. (Conceivably, the restrictions on American law firm ownership help drive more resources towards tech solutions.)

2. When I started this inventory, I expected the tech entries to outnumber the talent entries, and I was surprised to see the opposite result. That might be purely a function of what I found, rather than what’s actually there. But I do take it as evidence that many more lawyers have seen and responded to the changes in how clients are buying legal services and engaging legal professionals than we generally credit. If anyone within your organization wants to reject change on the basis that ” no one else is doing it,” show them this post.

3. A lot of these companies and products might want to reconsider the fad in branding that creates a name by joining two related terms together to make one word. (Says the guy with a blog called “Law21.”)

So there you have it: my incomplete inventory of this indeterminate thing called “NewLaw.” It’s good enough for my presentation; hopefully, with your contributions and observations, you can make it even better.

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.

You say you want a revolution?

If you’ve been reading my blog for a while, you’ll know that I’m convinced of a couple of things: (1) Fundamental shifts in the legal services environment will spawn a  diverse population of new providers that will expand access to those services while destroying lawyers’ market exclusivity; and, (2) This is, on balance, a good thing. I’ve never been more certain than I am today, at the close of 2013, about the first — but I’ve never been less certain about the second.

I’ve contributed a few thoughts recently about the state of the legal market to Lexis-Nexis, JD Supra, and the CBA’s National magazine, among others. My basic message is the same throughout: we’re no longer predicting a new legal future, we’re living in a new legal present.

And yet I still see people in this industry asking, “Where’s the revolution? When is the change going to come?” Folks, the change is here. We’re living it. Cast your mind back five years, when Richard Susskind had just published The End Of Lawyers?, and ask if you thought this much upheaval and advancement and innovation was possible in such a short period. Cast it back 10 years, when the blawgosphere barely existed, and ask the same. The legal market is becoming more diverse and more accessible every year; legal services are more affordable and more predictably priced every year.

Most importantly, the pace of that change is accelerating. More new things happened in this market in 2013 than in 2012. More happened in 2012 than in 2011, in 2011 than in 2010, and so on. Alternatives to the traditional — in terms of service providers, business models, workflow systems, delivery vehicles, pricing strategies, and so on — are becoming normalized; that is, they’re spoken of less frequently as “alternative” and more frequently as simply another option. We don’t even talk about the “new normal” as much — it’s all becoming normal. These are not the signs of change in retreat; these are the signs of change becoming mainstream — ceasing to be “change” and starting to become “the way things are.”

The normalization of alternatives comes at a steep price to the incumbents, and I’m aware of that. Lawyers have it tough right now, tougher than most of us have ever experienced, and I’m sorry to say it’s going to get worse before it gets better. I don’t take that lightly. But clients have it better already — better than they’ve had it before, in terms of knowledge and access and choice and affordability, with the prospect of much better yet to come. And at the end of the day, as much as I care about lawyers, I care about clients more, because they’re the reason we’re here: to help them use the law to reach their goals, enhance their dignity, and better their lives.

So what’s the problem? Why am I suddenly also concerned about whether all this change will, in fact, be a good thing? Because while I hope and trust that the traditional legal market will fall away and that a better one will replace it,  I’m increasingly alive to another possibility — that the traditional legal market may fall away, and nothing will replace it.

One of my very few hobbies is geopolitics (yes, I know I need to get out more often). I’m a dabbler in this field at best, but I’ve had an interest for many years, and I still remember what I was thinking on the day the Berlin Wall came down. Certainly those were extraordinary images and wonderful times, a lifetime marker for the generations that helped bring it about or watched it happen. But what was going through my mind, watching the Wall come down and totalitarian governments all over eastern Europe collapse with it, was: This is happening too fast. Corrupt, decrepit regimes were falling over like dead trees in a windstorm, but in many cases, there was nothing — no replacement regime, no legitimate constitution, no rule of law — to step into the breach. Some of these countries, to their great credit, grew reasonably healthy liberal democracies out of the rubble. Many did not.[do_widget id=”text-7″ title=false]

George Friedman has observed, accurately, that the people who start revolutions are often not the people who finish them, and that revolutions do not always end up where their instigators hoped they would. I think it’s fair to say that we’re at the start of a revolution in the legal services market. That should be, and is, exhilarating. But it should also summon us to the barricades to make sure that, if the incumbent regime falls, looting and chaos are not the immediate outcome and the lasting legacy.

If you want an example, take a look at law schools. You’re probably aware that applications to US law schools have been dropping like a stone and that enrolment is now down to its lowest level since 1977. As Bruce MacEwen notes (and as I’ve been saying for some time now), this story has only one ending: many American law schools will close or will become so small as to turn into veritable cottage businesses. There’s no question that there are too many law schools providing too little value to their students and to the clients they’ll someday struggle to serve, and that a major correction is overdue here. There’s also a lot of schadenfreude throughout the profession right now as these schools wriggle on the hook.

We can hope for and work towards a renaissance and reinvention of law school. But what if that fails? What if 80% of US law schools close and are not replaced? Will the profession and the public be well served by a legal education system that features Harvard, Yale, Stanford and a few other clones, and nobody else? Or what if the failed law schools are followed by profiteering private law degree factories that replace the passive academic lecture with cookie-cutter “practical training” packages bereft of jurisprudence and professionalism? I think this is an unlikely outcome. But it is a possible outcome — a possibility that didn’t exist 10 years ago, but does today.

Or take a much bigger and broader example: the legal profession itself. This blog contains six years’ worth of mounting criticism of lawyers and warnings of dire consequences should opportunities for reform be ignored too long. But it also contains staunch defences of the inherent value of lawyers as expert counsellors to troubled clients and defenders of the rule of law. Lawyers are both desirable and necessary. But we’ve exploited our protected and prestigious position in this market for so long that an over-correction is now possible — not lawyer reform, but outright lawyer rejection. Alternatives to lawyers, as I’ve detailed above, are here and are flourishing, and we’ve encouraged them to develop by our failure to fully serve the market. These alternatives should complement us, not replace us. But it might not work out that way.

Let me be clear: I’m not backtracking, not one inch, on my belief that this market needs serious, structural reform, that access to legal services must be expanded and improved, and that lawyers should be playing different (but still important) roles in this market than we do today. Don’t mistake the foregoing for the kind of fear-mongering employed by protectionists and lawyer exceptionalists to beat back change in their own interest. Instead, this is a call for the legal profession to recognize that change is really happening — and that we now need to throw our efforts into trying to manage, to the extent possible, the enormously strong forces coming into play.

How can we avoid the worse- and even worst-case scenarios? How do we manage the effects of revolutionary forces? This has to be a collective effort — everyone in the legal profession and its associated institutions has to play a part. Here are my recommendations.

1. Regulators must lead the way by recognizing these trends and staying well ahead of them. Every regulatory activity and initiative must clearly enhance either access to legal services or lawyers’ professional standards. Every barrier to “non-lawyer” entry to the marketplace must be immediately examined and, unless objectively justifiable in the public interest, set aside. The self-governance of lawyers in the public interest must be protected and prioritized. Regulators that spend their time on trivia, such as declaring lawyer blogs to be improper advertising, are running enormous risks in a market environment this volatile.

2. Bar Associations must promote the value and professionalism of lawyers in a crowded market. Forget about any efforts to keep “non-lawyers” off our turf; that battle is over, and we lost. Now is the time to create “image campaigns” that tell clients, not why we want to law school, but why a lawyer’s ethics, professionalism, expertise, reliability and integrity are worth the premium that we inevitably will cost. These are marketing campaigns that communicate the extraordinary value that a lawyer brings — while recognizing and readily conceding that not every situation requires a lawyer’s services.

3. Law Schools must preserve and promote the importance of professional values in legal education. Those schools that survive the coming purge will be under enormous pressure to provide “practical,” “real world” training and clinical opportunities, and so they should. But they must also recognize and embrace their role as the incubator of ethics and professionalism, because the competitors that will emerge in the education and training space likely will not care about these facets of the future market as much as law schools do or ought. Law schools will provide lawyer training simply to survive in this market; they must also provide the primary foundations of ethical lawyer behaviour.

4. Courts must recognize that their traditional role as the arbiter of private legal disputes is in mortal danger. Ninety-eight percent of disputes never see the inside of a courtroom, and 90% of all disputes never even enter the process. Courts are utterly agonizing to many of the people who use them and utterly irrelevant to all those who cannot; this is a short road to disaster. Train staff to help self-represented litigants, because they will shortly and permanently outnumber lawyers; deputize senior lawyers to resolve conflicts locally; institute ODR services affiliated with courts’ enforcement powers. Above all, rip off the blinders and recognize how close you are to the edge of the chasm.

5. Lawyers must accept and act upon a single new reality: we cannot continue to make a living in the law the way we used to. Full stop. We must create sustainable cost advantages through adoption of technologies and processes. We must cede to new competitors work that we cannot do as efficiently, effectively and profitably as they can, forming partnerships where appropriate to integrate services in a complementary fashion. We must learn to price rationally, fairly, and predictably. We must remember and pursue the true purpose of law. Above all, we must resist every temptation, no matter how small or how great, to compromise our ethics and professional stature for any business reason. These will soon be our sole competitive advantages.

Revolutions are powerful, frightening, and unpredictable things. Once they’re really underway, they can’t be controlled or directed. Market revolutions are less violent and bloody than political ones, but they can be just as destructive. In times of revolution, you figure out very quickly just what it is you need to really safeguard. I believe we need to safeguard the rule of law, the independence of the profession, and the fundamental values to which lawyers have always sworn oaths. Everything else is replaceable or negotiable; these are not.

In 2014, the revolution in the legal market will continue to foment, to bubble away, to push in from the edges and from underneath. One of these days, it will break out in full, and it will be a wonder and a terror to behold. I truly don’t know when that’s going to happen. But I do know that if we want there to be a viable legal profession afterwards, we need to act now — to lock down and preserve the critical few things that we really, truly can’t afford to lose.

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.   

Advice to associates about law firm efficiency

I recently delivered a webinar to a group of associates at one of my law firm clients, as part of the firm’s internal CPD and training program. (I referred them to my recent posts about associates, which probably didn’t make them very cheerful.) Among the advice I gave the associates was to start looking for opportunities to streamline their work, increase their efficiency, and reduce their own “cost of doing business,” in order to make themselves and their practice groups more competitive and effective.

This led one associate to send along a follow-up question, which I’ll paraphrase thus: “Is this my responsibility? What role should I realistically be expected to play in finding enhanced efficiencies in my practice? Do I wait to be directed by the partners, or by the IT staff?” It’s a good question, with an important subtext: “Come on. You seriously expect me to make my practice more efficient, billing fewer hours, without the direct approval of the partner who controls my career?” Here’s my reply:

My advice about efficiencies is primarily addressed to associates in your role as future law firm owners. Whether that’s as partners with this firm or in a different capacity (maybe running your own sole practice someday), you need to look for efficiencies and process improvements to begin reducing your own cost footprint, in order to maximize the profit derived from your revenue.

Now, if you’re running a business on a cost-plus pricing model (i.e., you multiply rate X hours, trying to maximize both in every situation, and bill the result), then efficiency is the enemy of revenue and therefore of profitability, and you should try to avoid it. This would be a sensible strategy if the year were 1993. But since it’s not, I don’t recommend it. By the time you become an experienced law firm owner (regardless of the firm), you’ll be confronted with a market that rejects cost-plus pricing for all but the most specialized, demanding, high-stakes work (and with all respect, the odds simply do not favour the idea that such work will constitute the bulk of your practice).

So I believe you should start, today, even as associates, thinking about and looking for ways in which you can reduce the cost-generating friction of inefficient work practices. If you can produce a flowchart or checklist that will allow you (and your colleagues) to carry out routine and repetitive matters more rapidly (and, by the way, likely at higher quality), you should do so. If you can identify free legal research resources (such as CanLII) rather than paying Lexis or Westlaw to look up cases, you should do so. If you can build and contribute to even a modest knowledge management database so that wheels don’t need to be reinvented every day, you should do so.  [do_widget id=”text-8″ title=false]

Fundamentally, associates should develop the habit of asking themselves, before embarking on any measure to carry out a legal task: “What if this were my money being spent? Would I consider it wisely and justifiably spent? Would I be asking about alternatives?” Thinking like a client is an invaluable skill to develop, and the best way to start honing it is to think about the client, all the time.

Now, this all comes with a giant caveat, and that is: you’re not yet the owners of a law firm. You’re employees, and your bosses are the owners who decide how work is done at the law firm and how it’s priced. Associates can’t independently give themselves the authority to decide how the law firm’s work should be carried out. That’s the law firm’s call, not yours.

Nonetheless, I also believe that you owe it to your employers, to your clients, and to yourselves to investigate efficiencies and process improvements at ground level that could reduce costs and/or improve quality — and having investigated and identified such steps, to bring them to the attention either of your immediate reporting partner or the firm’s managing partner.

That’s a formidable challenge for any associate, especially in this environment. So in order to relieve you of the burden of deciding when and where to report — as well as the intimidation factor of potentially bringing efficiencies to the attention of a partner who has no interest in them — I think the managing partner should require you to identify such steps and bring them to his or her attention on a quarterly basis. This places the responsibility for potentially disruptive discussions with the MP, not with highly vulnerable associates.

The firm must also do two other things:

  1. Take into account the process improvements identified by associates in assessing their productivity and contribution to the firm’s value — if these improvements reduce their billable hours and therefore their compensation, that obviously would be a perverse result.
  2. Provide the associates with complete protection from any political consequences that might flow from introducing potentially disruptive changes to the firm’s workflow practices — ideally, in fact, associates should be directly rewarded for helping to bring about such enhancements.

The upside of adopting this practice is that you learn, as associates, to start identifying improvements in how you do your work, enhancing your own ability to someday be a profitable law firm owner, without potentially incurring the wrath of traditional partners, because the option to not look for and report such improvements has been taken out of your hands.

Everyone would benefit from this. The associates improve their productivity, build their confidence, increase their profitability, and become easier to retain. The firm, if it implements these innovations, can lower its prices in a tough marketplace while remaining profitable, make its prices more predictable in a market whose demands for fixed prices become louder every day, and differentiate itself from its competitors. Clients get lower prices, more predictable prices, or higher quality, and maybe even all three.

And all of this starts with one simple proposition: associates should be empowered to increase the efficiency, effectiveness, and productivity of the firm. In most of the firms I’ve seen, it’s the new lawyers who are most enthusiastic about working differently and better; older partners tend to be more concerned with holding on to what they’ve got with both hands. Which of these two groups has the firm’s best long-term interests in mind? Which should be encouraged to act and be supported when they do?

You bet I expect associates to assert themselves, and to seek and receive the firm’s support in doing so, when it comes to improving efficiency and effectiveness. Neither the associates nor the firm will have much of a future in this new legal market unless they do.

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.  

ABS in Canada? Closer than you might think

This post was originally published as two articles in the October 25 and November 1, 2013 issues of Canada’s The Lawyers Weekly newspaper. Reproduced here with thanks.

Unless you’ve been making a special effort not to notice them, you’re probably aware of Alternative Business Structures (ABS), the most radical of several developments introduced in England & Wales by the Legal Services Act 2007. An ABS license permits ownership of a law firm, or of any enterprise delivering legal services, by people who are not lawyers. It’s exactly as paradigm-shifting as it sounds.

In the 18 months since ABS status has been made available, more than 200 ABS licenses have been issued in Great Britain by regulatory bodies such as the Solicitors Regulation Authority and the Council for Licensed Conveyancers. Most of these licenses went to existing law firms or into enterprises in the personal injury and road accident sectors, but not all. Here are a few ABS highlights worth considering:

  • Slater & Gordon is the Australian personal injury firm that became the world’s first publicly traded law firm more than a decade ago. S&G has gone on an acquisition spree since gaining its ABS license last August, most recently with its acquisition of Manchester-based Pannone, The firm now counts 460 staff in 12 locations throughout the U.K., and its CEO has confirmed that the firm is eyeing the broader consumer law market.
  • Riverview Law is a corporate law firm that charges fixed fees for all its services. While its original focus was small and medium-sized enterprises, it has drawn interest from large companies as well. Riverview is owned by holding company LawVest, which has applied to become an ABS and is itself owned in part by global giant law firm DLA Piper. Riverview already counts 100 lawyers and plans to double in size over the next several months.
  • The Co-Operative is a nationwide consumer goods and services company that sells groceries, financial services, insurance, travel and funeral services, among other things. Last year, the Co-Op obtained an ABS to convert its existing Co-Op Legal Services division into a full-fledged legal services provider in the areas of family law, real estate, wills, personal injury, and employment law. Its website offers a toll-free number to phone for locations in the caller’s area.

Among the other entities that have received, have applied for, or are known to have interest in an ABS license are legal expenses insurer ULR Additions, venture capitalists Smedvig Capital, the Direct Line Insurance Group, private equity firm Duke Street, legal textbook company Jordans, logistics company Stobarts, outsourcing giant Capita plc, and a couple of accounting firms you may have heard of: KPMG and Ernst & Young.

Many of the new ABS providers have gotten off to strong starts. But not all of them have, and there’ve already been some high-profile stumbles and even failures. Conveyancing ABS In-Deed Online closed down in June just two years after its debut, its demise perhaps spurred in part by an overly hasty stock-market listing after it premiered.

For its part, Co-Op Legal Services reported a £3.4m loss in the first half of 2013 after breaking even in 2012, part of an overall terrible year to date for the parent company. (In fairness, Co-Op Legal did record an increase in revenue over that period, and it plans to stay the course.) And although it’s not an ABS, small-firm franchise provider Quality Solicitors is backing away from its plan to operate legal information kiosks in WH Smith bookstores around Britain. [do_widget id=”text-8″ title=false]

So far, then, the ABS market is playing out much as you’d expect in a startup industry: many diverse players, several early successes, a few notable shortfalls. The important thing, to my mind, is that the early predictions of disaster — non-lawyer shareholders driving unscrupulous behaviour, senior law firm partners selling out their equity shares to private investors, the collapse of professionalism — have not come to pass. Nor do they appear to be on the horizon.

Now, this may be all very interesting to a Canadian reader, but surely, it’s also academic? Whatever the merits of England & Wales’s great experiment in legal services delivery, Canadian lawyers can rest assured that nothing this radical will jump the pond and land in the colonies anytime soon. Right?

Well, maybe not. Four separate provinces are looking closely at potential reform of their legal services regulatory regimes, reviews that include consideration of alternative business structures and the delivery of legal services by entities other than lawyers. Many Canadian lawyers are at least aware of the changes taking place in Great Britain; fewer are aware that we may be closer to similar developments here in Canada than they realize.

Ontario is at the vanguard of this process, of course, having become in 2007 the first jurisdiction anywhere in North America to recognize and regulate non-lawyer providers of legal services (independent paralegals). There are now more than 5,000 paralegals licensed to provide legal services in Ontario.

In the fall of 2012, the Law Society of Upper Canada set up an Alternative Business Structures Working Group, whose mandate includes studying new developments in alternative legal service delivery worldwide, developing criteria to assess these developments, and identifying any legal service delivery models and regulatory changes that the law society should be considering. The ABS Working Group has already heard from many people with an interest in these matters (including yours truly), and it published an interim report in June 2013.

That report recommended continuing study of the issue and engagement with the professions on the subject of (a) limited non-licensee ownership of law firms and (b) a review of existing rules regarding business structures (including the absolute ban on fee-sharing and referral fees with non-licensees). Any recommendations made by the Working Group would be subject to Convocation’s approval. The Group’s final report is slated for spring 2014. (Read this Storify collection of tweets from last month’s LSUC ABS conference, too.)

In British Columbia, the law society has already investigated ABSs, publishing its own report in October 2011, shortly before ABS licenses became available in England & Wales. That report stated that although there was much talk about the promise of innovation and access to justice arising from ABSs, it was too early to tell whether other jurisdictions should follow Britain’s lead in radically liberalizing their legal services regulatory regimes.

But the report did not close the door on ABSs, recommending further study as more evidence came to light. Indeed, this past June, the Law Society of British Columbia’s annual Bencher Retreat was devoted to the topic: “The business of law in the 21st century: Do we risk losing (or can we maintain) our professional values?” Guest speakers (including yours truly again) and benchers spoke at length about emerging issues such as ABSs, access to justice, and the impact of technology on legal service delivery.

In Nova Scotia, at its most recent annual meeting in July, the Barristers’ Society Council approved a project plan called “Transforming regulation and governance in the public interest” (PDF), and began discussing goals relating to another strategic priority, “Enhancing access to legal services and the justice system for all Nova Scotians.” An executive summary of the latter report (PDF) stated that “[n]ew and innovative models for the delivery of legal services would be an essential component of any access to justice strategy.”  This article describes Nova Scotia’s plans in more detail. [do_widget id=”text-7″ title=false]

And in Manitoba, the Law Society has established a committee of local innovators (both those who are lawyers and those who are not) with an intriguing mandate: assume there is no law society, and design a structure and system to regulate legal services. For instance: Should lawyers have a monopoly on legal services, or should they be simply one competitor among many? The innovators will also examine ABSs, law firm regulation, and the controversial issue of recertification (requiring lawyers to demonstrate competence every several years). This committee will report in March 2014, with implementation of its recommendations planned for that fall.

(Separately, it should be noted, Manitoba is also collaborating with Saskatchewan, Alberta and B.C. about a common approach to ABSs.)

As you can see, the issues that these four law societies are investigating go beyond the relatively narrow topic of ABSs. They’re really looking into whether and to what extent legal services regulation in this country requires a serious reconsideration, and maybe even a major overhaul. These concerns, in turn, are prompted by the very real crisis in access to legal services in Canada, and by a sense that we may need to fundamentally rethink how we define “the best interests of the public” in the 21st century.

Having had the opportunity to address Benchers in Ontario and B.C. on these issues, I’m encouraged by what I’ve seen and heard. Each of these four law societies (and, I’m sure, others across Canada) recognize that we’re entering a crucial period in the evolution of the legal market, and that traditional models of legal services regulation cannot and will not pass through this period unchanged. Our law societies are asking the right questions, and I’m optimistic that they’ll come up with good answers.

So this would be the worst possible time for lawyers to again circle the wagons, as we’ve done so often in the past, demanding the continued ring-fencing of our traditional protected territory. Forces far beyond the control of lawyers are now driving this market. I would like to see us work with these forces, not strive pointlessly against them, towards the twin goals of improving access to legal services and enhancing lawyers’ professional values.

Will we see alternative business structures approved in at least one Canadian jurisdiction within the next five years? I’d rate that as a strong possibility. But for us to even get close to that point, we’ll have to engage in an thorough and overdue reconsideration of the purpose lawyers serve in Canada’s legal market.

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.