Who’s your biggest competitor?

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

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

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

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

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

  • My client.

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

Consider:

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

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

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

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

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

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

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

The limited-profit law firm

What if your law firm were legally prohibited from making too much money? What if there were a fixed profit ceiling for equity partners, and any profit exceeding that amount had to be distributed to others? What if your firm explicitly placed social goals ahead of revenue goals — what would change about your firm’s culture, structure and position in the marketplace?

This is, perhaps needless to say, mostly a thought experiment, since the number of law firms clamouring for this kind of setup are vanishingly few. But a recent article in The Economist about an emerging corporate form called a “benefit corporation,” or B Corp, got me thinking. B Corps, the article explains, “must have an explicit social or environmental mission and a legally binding fiduciary responsibility to take into account the interests of workers, the community and the environment as well as its shareholders. It must also publish independently verified reports on its social and environmental impact alongside its financial results.”

Companies seeking to establish themselves as B Corps are those wishing to place social or environmental goals above profit and revenue objectives, but which find it difficult to do that under the traditional corporate form. These aren’t non-profit organizations, but you might call them limited-profit, qualified-profit, or “yes,but” companies: yes, they want to make money, but they want to accomplish other things more. The Economist cites other corporate vehicles in this vein like flexible purpose companies (FlexCs), low-profit limited-liability companies (LC3s) and in the UK, community interest companies.

Could a law firm become a B Corp? Several small firms in the US have already done so, but there are complications. Carolyn Elefant explores the problems with B Corp law firms in a detailed post that points out a fundamental conflict: lawyers are required to place their clients’ interests ahead of all others, so a firm whose founding documents placed the highest priority on, say, the environment, would be breaking the profession’s ethical rules.

For example, consider a situation where a client receives a generous settlement offer in a contingency matter against the Sierra Club or some other environmentally conscious company popular in the community, but the client, reasonably, does not want to accept the offer because of certain conditions attached to the offer. However, pursuing the case to trial will be upsetting to the community and further, force the lawyer to lay off several employees to conserve cash flow for remaining discovery and trial and could potentially limit the Sierra Club’s conservation efforts due to lack of funding.

Ethically, so long as the client’s rejection of the offer is reasonable (which it is here), the lawyer must abide by the client’s decision. But under the b-certification framework, equal consideration of the interests of firm employees, the community and the client would militate in favor of the lawyer either strong-arming the client to accept the settlement or withdrawing from the case.

This is a strong objection to the use of B-Corp status for law firms, and if push came to shove, I could see a regulatory body ordering a law firm to abandon a corporate form that explicitly placed someone other than the client at the top of the priority pyramid.

Nonetheless, I wonder if there might not be other solutions. Slater & Gordon, for instance, the Australian personal injury firm that floated on the stock market several years ago and is now an international behemoth, makes for an interesting case study. As my Edge colleague Gerry Riskin pointed out at the time, Slater & Gordon’s initial prospectus was very clear with potential shareholders where its priorities lay:

“Lawyers have a primary duty to the courts and a secondary duty to their clients. These duties are paramount given the nature of the Company’s business as an Incorporated Legal Practice. There could be circumstances in which the lawyers of Slater & Gordon are required to act in accordance with these duties and contrary to other corporate responsibilities and against the interests of Shareholders or the short-term profitability of the Company.”

This seems to me a good way of making clear to shareholders that their profits are a tertiary concern for the firm: the firm believes (correctly) that its first duty is to the courts and its second is to clients. A modified form of B Corp or other limited-profit corporate form could be envisioned that would similarly arrange the peculiar priorities of a fixed-profit law firm. Might this kind of qualification address the ethical concerns that Carolyn raises? I’m not certain, but it’s worth thinking about.

For myself, I keep coming back to ponder the strengths and weaknesses of a limited-profit or fixed-profit law firm. Disadvantages? Legion: rainmakers and high earners would desert a firm like that immediately, knowing that their hard work would quickly strike an immovable low ceiling of financial returns. The firm would be unable to recruit ambitious lawyers or high-potential law students for the same reason. Clients who want the very best lawyers would turn away from a firm of anti-capitalist do-gooders. As a vehicle for anything more than a modest mid-sized firm, it’s almost certainly a non-starter.

But there’s upside, too. A law firm that was precluded from chasing ever-higher profits would have to find some other guiding business purpose. Maybe, as with many B Corps, it’s an environmental target, a quest to reduce its ecological footprint and those of its clients. Maybe, more likely for a law firm, it’s a social purpose: serving only clients in low- or middle-income brackets, making access to justice its higher calling.

Alternatively, maybe the firm simply rearranges how its profits are spread. Partner profits would be fixed at the start of the year on a percentage basis (lockstep or otherwise), so that beyond a certain dollar figure or percentage of total revenue, the partners couldn’t make any more money. Accordingly, the excess would be divided equally among associates or staff — everyone gets a bonus when the firm succeeds, driving everyone to make the firm’s success the top priority. And if you want to really go around the bend, make clients the beneficiary of success: every extra dollar at the end of the year is returned to clients per capita, like a co-operative. How’s that for a marketing tactic? Hire our firm and you might get a refund on your fees.

Yes, I know I’m dreaming in technicolour. And anyway, law firms don’t need a special corporate structure to do many of these things. But what these new vehicles really do is allow us to re-envision the purpose of the corporate entity, enabling reasons for existence other than the generation of wealth for ownership. The great majority of problems afflicting modern law firms, it seems to me, come down to money: competition for revenue, fights over profit, arguments about who makes more. Imagine a law firm that was structurally relieved from any of those concerns. You think we could live with a few of those in the legal market today?

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

Pam Woldow joins Edge International

It’s my tremendous pleasure to announce that Pamela H. Woldow, one of the world’s top legal consultants and an unparalleled expert in legal project management and alternative fee arrangements, has joined Edge International as our partner and general counsel.

To those of you who read this blog regularly, Pam requires no introduction: you’ve seen me reference her work and her expertise here several times over the past 2 1/2 years. But if you’re not as familiar with Pam, let me briefly sketch her accomplishments (for a complete list, please see her full biography at the Edge website):

  • Pam has served as Chief Counsel of the Pennsylvania Department of Insurance and Deputy General Counsel of Pennsylvania.
  • She has worked as Director of Litigation Management for a $2 billion public financial services company.
  • She has practised complex commercial and environmental litigation with Sidley & Austin, Duane Morris & Heckscher, and a respected environmental litigation boutique.
  • She has been designated by the American Bar Association as a “Legal Rebel” – a change catalyst leading innovation in the practice of law.
  • She has served as a leading consultant to law firms and especially to general counsel for several years, providing advice and counsel to some of the largest in-house law departments in the world.

Pam’s written work includes some of the most incisive commentary available on AFAs and project management in the legal services marketplace, and her accomplishments and observations have received much legal media attention. We couldn’t be happier to have a consultant of such magnitude, and a person of such stellar character, join our partnership.

And there’s more good news: Pam has joined the blawgosphere! Please visit her new blog At The Intersection, and read her opening post about the corner at which general counsel and managing partners meet. And as always, you can still follow Pam’s excellent Twitter feed at http://twitter.com/pwoldow. On behalf of all Edge’s partners and friends worldwide, please join me in welcoming Pam Woldow to Edge International!