My newest column at Slaw, the best of Canada’s increasingly impressive law blog collection, has been posted. Go read it there and check out the rest of the news and remarkable insights Slaw makes available every day.
Just a quick note to pass on some good news: Law21 has made the ABA Journal‘s Blawg 100 list for the second straight year! My thanks to the Blawg 100 committee for including this site in its listings — it continues to be an honour to be in such excellent company. Check out the other blogs in the Careers category and in all the categories, and please cast votes to show your support for all the sites you like. And thanks, as always, to you for continuing to tune in!
Even a dyed-in-the-wool optimist like me didn’t think there’d be so much progress so fast on what’s increasingly referred to as “alternative fee arrangements” (AFAs). Fulbright & Jaworski’s 6th Annual Litigation Trends Survey says 45% of clients are using AFAs like fixed and outcome-based fees. Hildebrandt’s survey of 231 companies showed about half are or soon will be employing non-billable-hour fee arrangements with outside counsel, with another quarter considering them. An Institute of Knowledge Development poll reported that in-house legal departments in Australia are using fixed fees for almost 40% of their external legal spend. AFAs are the subject of panels at the ACC annual meeting and discussions between top GCs and managing partners. And all this talk is bolstered by some remarkable initiatives by several large corporate clients:
* Orrick will handle all of Levi Strauss’ legal work worldwide for a fixed annual fee, according to The Recorder. Levi Strauss will keep only one other firm to continue its brand protection work. Where Orrick doesn’t have an office, the law firm itself will retain and pay outside counsel.
* United Technologies not only requires fixed-fee arrangements with its law firms — it also wants the firm to show exactly how it arrived at the fixed fee in question and how it intends to make money off it, Corporate Counsel magazine says.
* Cisco Systems now buys all its legal work through AFAs, again from Corporate Counsel. Routine matters are bundled together and firms are invited to bid for the work on a flat-fee basis. For more complex or protracted files, Cisco pays a flat monthly fee and a bonus for a good result.
* DLA Piper won a tender process to handle most of Kraft’s legal work, aside from major M&A deals, LegalWeek reported. While the article doesn’t mention fixed fees per se, the DLA lawyer quoted in the piece uses phrases like “controlling costs” and “operational efficiencies.”
How are lawyers responding to all this? Generally speaking, not well. Many continue to believe this is a temporary phenomenon, not a complete re-ordering of the pricing of their services. Some are panicking: Jim Haslett reports that some law firms are engaging in de facto price wars, offering flat fees well below normal with no clear plan how they can deliver at that price. And even well-meaning, sensible lawyers are now tying themselves up in knots over how they should charge for their services: fixed fee? Discounted billable hour? Blended rate? Success fees? What’s clear is that to an unprecedented degree, the legal profession is finally ready and willing to have a serious discussion about billing methods. Which is kind of too bad, because the whole discussion is, to a great degree, now irrelevant. Continue Reading
In conversation last week with a law school professor, the subject of law firms’ tunnel vision when recruiting law graduates came up. Firms focus relentlessly on the students with the highest grades, the professor lamented, even though these students can be one-dimensional performers with an affinity for the academic environment and no competing pressures outside the classroom. Contrast that with an older student, perhaps with a couple of kids and a part-time job, with or without a partner at home, who took an unorthodox route to law school and perhaps struggles to compete with the younger students — but who is still bright, hard-working, experienced and capable of being a standout lawyer. The firms never even look at graduates like that, and an opportunity is missed on both sides.
At first blush, I agreed with this. I’ve complained myself about the relatively unsophisticated approaches to recruitment that many law firms still take. The students most in demand are the top academic performers from the “top” schools, even though there’s nothing beyond the Cravath Theory to prove that students with high law school marks will make the best lawyers. Does a fleet of “A”s guarantee good lateral thinking, business acumen, client awareness or collaborative work habits? Of course not. Yet firms continue to flock to the academic stars while overlooking graduates who despite (or even because of) their unusual backgrounds would make superb lawyers whom clients cherish. Typical narrow-minded law firms.
Then I was struck by this thought: “Hang on. Who’s giving out these marks in the first place?” I turned back to the prof to ask whether the schools don’t bear responsibility of their own. If the older mother of two with a part-time job is more deserving of employment consideration than the 20-something with his nose in the books all year, why is she at the bottom of the graduating class while he’s at the top? Why doesn’t she get the A, if in fact she’s the stronger candidate to succeed?
But even as I asked the question, I already knew the answer. Law schools don’t assess students in terms of their likely success at the bar. They assess them the same way schools everywhere assess all their students — by the satisfactory achievement of knowledge standards, usually expressed in written form in short-term exams and long-term papers. In the same way that IQ tests measure only the taker’s ability to score well on such tests, so too do good marks in law school only measure one’s ability to complete law school courses to the school’s satisfaction. It has nothing to do with whether you’ll be a good lawyer someday. This is not a secret and it’s not a novel discovery. But the idea that law school achievement augurs professional success remains the fundamental assumption underlying law school, and the bar has accepted it for decades. It’s time for that to change.
The problem with using a law degree as the de facto qualification to seek admission to the bar, and the disconnect between the priorities of academia and the practicing bar, have never been so clear. A good example is a report recently released by a task force of the Federation of Law Societies of Canada on the common-law degree. It is not, by most measures, a radical document. It recommends that law societies in common-law jurisdictions adopt a uniform national requirement for entry to their bar admission programs, which has never existed and would certainly be nice to have. It does not recommend that law schools transform their curriculum, nor does it go nearly as far as the Best Practices Report, the Carnegie Report, or the ABA’s recent decision to focus on output measures when certifying law schools.
What the report does recommend is that every law school in Canada teach a stand-alone ethics and professional responsibility course, given the importance of these attributes to the practice of law. This has not gone over well with the law school community, to judge from comments in this Canadian Lawyer article from, among others, widely respected law professor Harry Arthurs:
[H]e finds it odd that the federation “took it upon themselves to lay down what law schools should be teaching and how they should use their resources and what their job is in general. Law societies, much less the federation, have no statutory power to tell law schools what to teach or to what end they should spend their scarce resources,” he says. … While Arthurs notes that the law society has the right to say who it will admit to practice, “they certainly can’t say to law schools, ‘You are going to teach legal ethics, you are going to teach certain skills competencies, and you are going to file a report annually which provides us with detailed information to demonstrate that you’re doing that.’”
Professor Arthurs is, of course, absolutely right. Law schools don’t report to law societies and are under no obligation to teach anything to their students simply because the law societies say so. His comments bring that fact into sharp relief — and should, I think, serve as the launching pad for the profession to rethink its traditional acceptance of the LL.B. or J.D. as the default qualification for entry into the profession. The first three years of its lawyers’ education and training are almost entirely out of the bar’s hands. That should strike the profession’s leaders as unacceptable and should galvanize them into doing something to correct it.
Let me be clear that this is not a call to impinge on law schools’ academic freedom or to take over the schools’ operation. I spent three years in law school, and running one is just about the last thing I’d want to do — they’re complex institutions whose management can be a challenging and thankless task. But they are not designed to be lawyer training facilities, and they are not practice-friendly. I still remember the law prof who told our class, “A students become professors, B students become judges, and C students become very rich lawyers.” I think he meant it to reassure us not to worry so much about grades. But it expressed perfectly the irrelevance of academic distinction to professional success, the self-perpetuating nature of law school achievement, and the remarkably arrogant belief that the highest form of legal accomplishment is the teaching of law.
The bar’s role is not to run law schools — lawyer-run institutions don’t tend to inspire confidence either. The bar’s role is to ensure that its members receive the best training available, in order to ensure the durability of professionalism and high-quality service to clients. I think that obliges the bar to look long and hard at the law degree and decide whether a three-year program over which the bar has no control is an appropriate prerequisite for practice. If the answer is yes, then the profession should quit complaining about what law school does and doesn’t do — lawyers don’t run law schools, and if they don’t care to create an alternative, they have nothing more to say on the subject. But if the answer is no, then the profession is obliged to come up with a prerequisite that it believes does provide appropriate preparation for admission to the bar, over which it does exercise an appropriate degree of control, and for which it bears complete responsibility (at considerable expense, I might add).
Should that come to pass, law schools will suddenly face competition in the lawyer training marketplace. And they’ll face a choice themselves: to maintain their current focus and perhaps risk a massive decline in enrollment and tuition, or to re-engineer themselves and compete directly with lawyer-operated training centers. That’s not a happy choice, and I don’t wish it on the schools gladly. But if and when the bar decides that it can no longer responsibly delegate the first three years of legal training to completely independent third parties, then that choice will arrive. This is a difficult but necessary process we can’t put off any longer.
My first post at Stem’s Law Firm Web Strategy Blog is up and running. The title is “Lawyers, journalists and trust,” and talks about the yawning trust gap between lawyers and the media and how to bridge it. My dozen years in legal journalism demonstrated to me how instinctively guarded lawyers can be even with prestigious legal trade publications; when it’s the local tabloid or talk radio show on the phone, lawyers can seize up altogether. The post offers a few tips toward minimizing that mistrust.
This is the first of what will be fairly regular posts at the Law Firm Web Strategy Blog, usually focused on the media, communications and branding, in my capacity as a Senior Consultant with Stem focusing on media and communications issues for law firms and legal organizations. If there’s a topic you’d like to see explored under these themes, drop me a line at email@example.com anytime.
If you happen to be in Winnipeg or Toronto over the next few days, look me up. On Friday morning, I’ll be delivering the keynote address at the 2009 Isaac Pitblado Lectures, sponsored by the Law Society of Manitoba. The theme of the conference is the future of law; I’ll be sketching out the likely landscape of the legal services marketplace in the 2020s and identifying five emerging catalysts taking us there. It’ll be a terrific event — the Saturday morning keynote will be delivered by Richard Susskind, while other panellists and speakers include Karen Mackay, Dan Pinnington, and Don Douglas. If you can make it, I highly recommend it.
I won’t be speaking at the Canadian Bar Association’s annual Law Firm Leadership conference in Toronto, which starts Monday, but I’m absolutely going to attend. The theme is change management, and the roster of speakers is remarkable: Richard Susskind again, Bruce MacEwen, Paul Lippe, David Allgood, Les Viner, David Corbett, Dale Ponder, Patrick J. Lamb, and many others. You won’t need to be a managing partner to derive value from this event — the trends and best practices under discussion will benefit anyone who wants to know about transformative law practice in the decade to come. If you’re in the neighbourhood during these events, please drop me a line.
For as long as most lawyers can remember, the billable hour has defined, powered, and shaped their law firms. It determines how lawyers work, how they sell their work, how much they earn, and how they assess and reward their employees. It breeds inefficient, overworked lawyers and frustrated, resentful clients; but it has also proved almost impossible to kill. I’ve come to believe that we haven’t been able to kill it because we’ve been hunting for the wrong beast. We’ve been calling our target the billable hour, whereas we ought to have been describing it, more accurately, as the variable fee.
The fundamental client objection to lawyers’ fees is uncertainty: the client rarely knows the final price before the work is done. Neither, in most cases, does the lawyer — either because the price is truly unpredictable or, far more likely, because the lawyer has neither the means nor the incentives nor the inclination to figure it out beforehand. The fundamental variability of legal fees powers a business model that has proven enormously profitable for lawyers: because the fee varies according to the amount of time and effort devoted to the task, the lawyer has every incentive to maximize that time and effort. Uncertainty creates risk — 100% to the client — and reward — 100% to the lawyer.
The radical change facing law firms today is the end of variable fees as law firms’ financial engine and their replacement with non-variable fees — or, in the parlance of the day, fixed fees. Evidence continues to emerge not only that fixed fees are the immediate future of how lawyers’ services are sold, but also that they’re long-term future of how lawyers’ entire businesses operate.
Fees that vary according to the lawyer production process, rising in tandem with time and effort expended, naturally give rise to inefficient workflow, reinvented wheels, maximized activity and over-accomplished tasks. Conversely, fees that are fixed in advance by the purchaser naturally give rise to proportional efforts, recycled know-how, streamlined processes and hyper-efficient workflow. The first type of law firm business model is starting a steep decline; the second is in sharp ascendancy. In the result, we’re going to witness a sea change in the culture and operations of many law firms. It’s not destiny or professional genetics that makes law firms houses of horror for both the lawyers who sweat to docket the hours and the clients who grimly pay for them — it’s the fever grip of the variable fee. The rise of the fixed-fee-driven law firm is going to demonstrate just how different and better a law firm can be.
Two examples: first, an excellent article at LegalBizDev by Steve Barrett, former CMO of Drinker Biddle, with a title that says it all: “Alternative fees demand improved project management.” It argues that any firm thinking about adopting a fixed-fee approach to sales must be prepared to overhaul its internal systems and business culture. Fixed-fee firms can’t survive massive writeoffs by lawyers who made clients promises about price that they couldn’t keep, or succeed without tracking the progress of past fixed-fee approaches and instituting technological tools to analyze them. And no firm can even contemplate fixed fees without a very clear understanding of the most important aspect of their business: what it has cost them in the past to deliver their services:
Many firms mentioned that a good understanding of cost patterns has never been developed in their firms. One said (paraphrasing) “We should know how much an ‘XYZ financing transaction’ typically costs, since we do hundreds of them every year.” Another (again, paraphrasing) said “I can’t believe we don’t know the cost of a typical deposition, since we must do thousands a year.”
As clients ratchet up the pressure on their lawyers to deliver results on a fixed-fee basis, firms will be obliged — forced is probably a better word — to implement these systems and gather and use this data. Just as the variable-fee model discouraged the adoption of these processes and approaches, fixed-fee models will require it.
Second example: firms’ use of associates. Pamela Woldow and James Cotterman of Altman Weil warned law firms in a recent seminar on associate compensation that they need to cut associate salaries much more deeply and accept the fact that clients will never again pay for new associates billed out by the hour. Clients would much rather rely on their own contract lawyers or on offshore professionals than on inexperienced associates; but the opportunity to train associates with this work — and, much more, the ability to generate revenue off these associates’ billed hours — is key to law firms’ success. The solution to this impasse: fixed fees.
Woldow pointed out that corporate clients are more amenable to using first- and second-years on their matters in fixed-fee arrangements. “So if you really want to use and train your first- and second-years, then up the alternative fee arrangements,” she said.
Endless battalions of associates only make sense in a variable-fee system. When the amount of money you make is tied directly to the number of people working on a file and the amount of time they take to do it, you have every incentive to increase both. In a fixed-fee system, profitability flows in precisely the opposite direction: fewer people hired, fewer hours spent. Law firms that abandon variable-fee structures will shortly find themselves completely rethinking how many associates they hire, how much they pay them, and what tasks those associates are assigned. Under a fixed-fee system, a firm that genuinely wants to train its associates can afford to do so, not least because there’ll be fewer of them — the demand for associates will plummet, along with their cost.
As variable fees give way to fixed fees, we’re seeing a corresponding shift of burdens from the client to the lawyer: the risk of financial shortfall, the maintenance and analysis of relevant data, the obligation to control costs, the necessity of working smarter, the requirement to properly define productivity, and the responsibility to prioritize value. These changes are poised to transform lawyers’ incentives, processes, systems, and attitudes — for the better. Forget the billable hour: the future of law practice is tied to whether lawyers’ fees remain variable — or, put differently, to whether the client or the lawyer decides how much the client will pay. If I were you, I’d bet on the side that’s holding the money.
Regular readers will be familiar with Blawg Review, which encapsulates the blawgosphere’s best posts over the previous week (and which I hosted earlier this year). In a similar vein is the Carnival of Trust, the brainchild of Charles Green of Trust Matters, which highlights the best posts about trust in the business and professional workspace over the previous month. Charles invited me to host the November 2009 edition of the Carnival, and I was more than happy to accept.
Trust lies at the heart of successful lawyer-client relationships. The term “trusted advisor,” made famous by the title of one of legal consulting’s best-known books (written by Charles and co-authors David Maister and Robert Galford), remains the gold standard that lawyers and law firms want to achieve for themselves. I’ve written about trust here at Law21 on a few occasions, and you’ll probably find this edition of the Carnival to be perhaps a little more lawyer-heavy than some past versions. But there was no shortage of good candidates from numerous fields this month, and it wasn’t easy whittling them down to this final list of ten. In no particular order, here we go:
I’m cheating a little on the first entry, since this post by Bruce MacEwen appeared in September and is therefore outside the range of this Carnival. But the post was so appropriate that I think it demands inclusion here. Bruce discusses the storms raging around the question of how lawyers bill clients, specifically the age-old practice of selling legal services by the hour, and reaches this apt conclusion:
Sadly, for too many of us, clients don’t trust us with their money and we don’t trust them to reward us fairly. If you hark back to those old-fashioned typewritten bills “for professional services rendered,” didn’t they positively reek of a close, trusting relationship? The lawyer would no more exploit the client than the client would expect (hope?) the lawyer would price representation at bargain-basement levels. This seems to me to be the enormous unspoken issue in today’s debate over the billable hour. If you don’t trust someone, you want something quantifiable. And you want the “most favored nation” rate and 10% discount on top of that. If you don’t trust someone, it’s all perfectly understandable. And uneconomic. Is this what we’ve come to? So perhaps more than anything else, I find the seemingly perpetual debate about the billable hour sad. Because I can’t think about it without thinking about forfeited trust.
Continuing this theme is consultant Jim Hassett, who is compiling an unprecedented survey of law firm leaders on the subject of alternative fees. If hourly billing is a substitute for trust, then shifting to predictable, fixed, or value-based billing systems necessitates the development of trust — and that starts with transparency and a willingness to engage in actual conversation. Here’s what one managing partner had to say on the subject:
[When we are] able to sit down in a very open dialogue with our clients regarding their needs, what works best for them, and what works best for us – including how staffing impacts our economics and how we focus on trying to put the right person on the right task at the right cost – we believe that we can tailor a fee arrangement that will work for our clients and will work for us.
The theme of honest communication also runs through this post by Allison Shields, who reminds lawyers that trumped-up claims, fear-mongering tactics and generally aggressive marketing can undermine efforts to build business. Accidentally or otherwise, over-promising — either from overconfidence or insecurity, both of which are not uncommon in lawyers — can have disastrous results.
[T]he essence of the lawyer-client relationship is one of trust. If the client feels that your marketing efforts amount to a bait and switch, or if you’re hiding behind what your potential clients feel are ‘fake’ offers or false promises (whether that’s your intention or not), that trust will be lost – and trust lost is difficult, if not impossible, to repair.
If there’s anything more important than a client’s trust in his or her lawyer, it’s the citizen’s degree of trust in the institutions of justice. Although this doesn’t get a lot of attention in the blawgosphere, the whole idea of “access to justice,” which lawyers prize so highly, assumes the reality and trustworthiness of both access and justice. Here are two posts that address this issue. The first, by Enrico Schaefer, is direct and to the point:
Except for the contingency fee lawyer who may choose to represent a person without any financial means, America’s civil courtrooms are dominated by wealthy Americans and wealthy companies. If that were not bad enough, many lawyers simply get paid to play games in court. Their goal is to keep cases from reaching the merits of the action, even when they’re the plaintiff. In many instances, the courtroom is simply another business tool to exert economic leverage over a competitor. Private arbitration has not proved to be much competition to the near-monopoly that federal and state courts have over dispute resolution. Until true alternatives to the courtroom become available, civil justice will remain a constitutional right primarily for the rich.
The other post, by Dan Hull, raises an issue that has long puzzled many of us in the Canadian legal system: the election of American judges. A fundamental right upon which many people rely is “their day in court,” when they can present their case before an impartial judge who will decide the matter before her on the merits. But can you trust the judge’s impartiality? Although there’s plenty to question in a strict appointment system too, Dan points out the flaws of making judges run for office:
The popular election of state judges–permitted in some aspect in a clear majority of the states–gives the appearance of justice being “for sale.” Elected judges can be especially “bad” for good clients who do business all over the U.S. and the world. Even when elected judges are “good”–and, to be fair, there are some great ones–state systems of popularly-elected judiciary will never inspire much confidence. Elected jurists who hear and decide business disputes are steeped in a taint. The point: Judges should not have “constituents,” i.e. law firms, and their clients, who make campaign contributions. Right now, in most American states, they do. And there is no way to dress that up.
Scott Greenfield is a criminal defence lawyer who’s never reluctant to challenge the justice system’s institutional failures. But this month, he touched on a topic that every lawyer can relate to and that goes directly to matters of trust: referrals. Enormous numbers of clients, having no other way to find a lawyer, request referrals from other lawyers. This is a tricky business, Scott writes, one that poses difficulties for the lawyer who receives the request:
When I refer someone to a lawyer, it’s a personal endorsement. I am saying to that person that I vouch for the competency and ethics of the person whose name I give them. It means something to me, and I feel responsible. Sure, I’m not my brother’s keeper and can’t do the other lawyer’s work myself. Sometimes things go wrong. Sometimes things just don’t work out well, or the fit isn’t there. But I cannot, and do not, send clients to just a name. Names are easy to come by. I can get you a name pretty much anywhere, but getting a name means nothing. … I would require far, far more to have the requisite faith to entrust them with a client.
Shifting gears slightly brings us to my former profession, journalism. Jeff Jarvis, crusader for new and better approaches to news coverage, focuses on the myths that struggling news media leaders tell themselves and others about how journalism “ought to” work. In a collaboration economy, Jeff says, traditional scarcity disappears and new relationships develop among crowd-sourced reporters and their readers. Not surprisingly, trust is at the heart of these relationships:
All those “extra” people add new value and efficiency – if you see the opportunity in it and enable them to. They’re us. That’s how Google sees us, capturing our links and clicks to discover the value of those million – no, trillion – flying pages. That’s how Wikipedia and Craigslist created their value, dealing in trust and membership as a new currency. That’s how I want next-generation news organizations to look at us, as the people who will create news while the news orgs add value to it: vetting, correcting, organizing, training, promoting, selling. The news orgs and their journalists then become so much more efficient because they work collaboratively with the public. That’s how they become sustainable and profitable again. But this happens only if you trust and value the others and understand the economics of collaboration.
Another topic I’ll never tire of discussing is innovation, something lawyers are still grappling with but that other professionals have long since recognized the value of and adopted. Put innovation together with collaboration and you have my full attention, as does this post by Ruth Ann Hattori, which draws the connections between trust and innovation. How would these questions be answered in your office?
The first step toward high collaboration is trust-building. … But what does that really look like in your workplace?
- Who can you trust and how do you know it?
- Will your colleagues “have your back,” no matter what (short of something criminal or unethical)?
- Does management give credit where due?
- Who can be relied on 100%?
- Do you keep/manage your promises?
- Are people really competent or faking it?
- Do your colleagues truly care if you are successful?
- Are you happy or jealous or envious for their success?
- Does everyone truly keep confidences… even when it doesn’t matter anymore?
- How open and honest is competition for promotion?
- Who is trying to gain favor of others?
- Do people admit what they don’t know?
- Do people ask for help without insecurity?
None of the articles I’ve highlighted so far, nor indeed any of the candidates for this Carnival, suggest that trust is a bad thing. Obviously, we proceed in any discussion of trust on the basis that it’s a virtuous and beneficial thing. But that’s not to say it’s easy. Trust, in fact, is hard, and that’s an important point that doesn’t get noted often enough. This post does us a service by reminding us of the risks of trust:
If you start from a position of trust, you are starting from a position of risk. There is no trust without risk. When you trust someone, you are putting your interests in their control. They have the ability to muck things up for you, and you are trusting them to take care of you (think about it: if they can’t really do anything that affects you negatively, then it’s not really trust). So it’s not just starting with the belief that your people want to do the right thing. That’s too easy. It’s easy to assume people have good intentions. Trust is about counting on them to behave in a way that is consistent with your interests, intention or not. There is, of course, a huge benefit to this kind of trust…. But it’s hard work for people in authority to give up that kind of control and accept that kind of risk.
The editor in me likes to start an article with a good anecdote, but in this case, I think I’ll use a good anecdote to finish this post. Jonathan Weber’s small-business blog makes the case for trust in business, and uses a small but powerful success story to make a very important point: trust works.
When we started NewWest, the domain name NewWest.com was owned by a furniture store in Wyoming, and the owner was not inclined to sell it. We worked out an informal arrangement where he would put a link to NewWest.Net on his site, and we would run advertising for his store. We checked in every now and again and had a few glitches with the link not appearing properly, but it was all friendly, and neither of us worried too much about the exact value of the trade. A few months ago, the owner of the store got in touch and said the domain name might be for sale, as he was closing the company. He said he’d sell it to us if I made a reasonable offer. I made an offer, he countered, we agreed on a price, and then his wife transferred the domain name to us, and we put a check in the mail. I hesitated briefly on this—should we have some kind of escrow arrangement?—but decided that, based on our previous dealings, I trusted these folks, and they felt the same. Frankly, I think if we had not had this kind of friendly, informal business relationship, we might not have been able to acquire the domain so readily.
So there you have it — ten excellent blog posts about trust from the last 30 days. But if those entries aren’t enough, here are ten more that will reward further reading:
– Build A Solo Practice @ SPU, “Social media platforms becoming the new content portal – lawyers included.”
– Cultivating Creativity, “Whole-hearted leadership.”
– Johngies.com, “How important is the spirit of the organization?”
– New York Law Blog, “Review of Chris Brogan’s Trust Summit: Be a priest and build a church.”
– Strategic Legal Technology, “Deconstructing O’Melveny chair’s remarks on BigLaw.”
– Seth’s Blog, “Notice me.”
-The Business Ethics Blog, “Should consumers trust Big Pharma?”
– The Small Business Blog, “Trust makes a comeback in business.”
My sincere thanks to Charles and to Ian Welsh for asking me to host this month’s Carnival and for all their assistance throughout. For more information about the Carnival of Trust, a list of past hosts and entries, and information about how you can host a future edition, visit the Trust Matters site.
I don’t normally focus on very large law firms and mergers thereof, but I’ll make an exception for this one. As you might have heard, US-based Hogan & Hartson and UK-based Lovells have apparently reached an agreement to merge their respective firms by May 2010. The combined entity (Hogan Lovells, provisionally) would crack the top ten worldwide in terms of both number of lawyers (circa 2,500) and annual billings (north of $1.9 billion), would have a massive global reach (as many as 40 offices, including substantial presence in China, Hong Kong and Germany), and would represent a rare joining of roughly equal-sized firms that appear compatible in both practice and culture.
I won’t try to improve upon the analyses already provided by Bruce MacEwen, Alex Novarese and Aric Press, among others. But I will provide one quote from each to indicate that this is not your garden-variety merger announcement:
– Bruce: “This is potentially a transaction that will change a conspicuous portion of the BigLaw landscape globally.”
– Alex: This is “the first concrete evidence to back up the claims made for months by managing partners on both sides of the pond that the general mood is warming to transatlantic mergers.”
– Aric: This is “a sign that while the Magic Circle and most financially elite New York firms continue to insist on their independent futures, firms just one step behind can see a future where a combination is greater than the sum of their parts.”
And in its daily e-newsletter, The Lawyer put it this way: “[T]he consensus so far in the market is that this deal could genuinely see the creation of something not seen before. ‘At a stroke you’ll have a firm the size of [Allen & Overy], better quality than DLA Piper, broader in scope than Herbert Smith and far more international than anything in the current UK mid-market,’ is how one London consultant sums up the deal.” The arrival of anything truly new in the legal services marketplace is always noteworthy, but a Hogan/Lovells merger could have significance beyond whether the firm manages to become more than the sum of its parts (which at this point seems fairly likely).
For one thing, this firm could be really transatlantic, in ways previous cross-ocean expansions (cf. Clifford Chance and Rogers & Wells) were not: a mega-firm, created by a merger of equals, with a center of gravity somewhere between the two capitals rather than vying between them (Hogan & Hartson, with a strong government practice, is headquartered in Washington, D.C., such that traditional London-New York rivalries might not kick in.) Back in February, I forecast a true US-UK powerhouse emerging from the recession, although I thought the American entry would hail from the Big Apple, and I didn’t think it would happen quite so soon. If the experts are right, other cross-ocean mergers might follow and a real wave of consolidation could be at hand.
Secondly, it’s instructive to note the innovations that each side is bringing to the table. The Lawyer reported earlier this month that Lovells is preparing to abandon its lockstep partner compensation system in favour of Hogan’s pure merit-based approach. Merit-based compensation has tremendous momentum in large firms right now, and although no one’s denying the challenges of partner compensation facing a potential Hogan Lovells, this suggests that more complex systems for assessing lawyers’ productivity are at hand. At the same time, Lovells was one of the first law firms to publicly acknowledge it was outsourcing legal document review to India, back in December 2007. UK firms are substantially ahead of their US counterparts in offshoring, so the Hogan side of the deal is going to acquire direct experience with this phenomenon. So in at least two ways, this is going to be very much a 21st-century law firm.
But here’s the main reason why I think this deal could be a game-changer: about a year after the expected May 2010 date for the Hogan Lovells merger to be completed, key provisions of the Legal Services Act come into force, and UK law firms will be allowed to accept non-lawyer investment and ownership under Alternative Business Structures (ABS). What if a future Hogan Lovells decided to take advantage of those provisions? It doesn’t figure to be the kind of Magic Circle or white-shoe firm that most agree would disdain the entrepreneurial offerings of the LSA — in fact, it looks exactly like the sort of firm (fresh, ambitious, global, innovative and unencumbered) for which the non-lawyer equity investment provisions were designed. If this new firm — or any other powerhouse resulting from a US-UK merger in the near future — went down that road, extremely interesting things would start to happen.
Hogan Lovells would be both English and American — and not one of the 50 states allows non-lawyer ownership of even a fraction of a law firm. So if this new firm did in fact accept venture capital or investment-fund equity, or float shares on a stock exchange, it likely would be in immediate contravention of the ethics rules in all the states where it carries on business. Hogan & Hartson, by way of example, currently has offices in Maryland, Colorado, Texas, California, Florida, New York, Virginia and Pennsylvania, as well as the District of Columbia. The ensuing tangle, it seems to me, would rapidly bring to a head the burgeoning conflict between how UK firms and US firms are structured and governed. In a globalized legal profession, this conflict is inevitable — but this new firm, if it comes into existence and if it acquires an ABS under the Legal Services Act, could actualize that conflict much sooner than we expect.
So keep a closer eye on this merger than you normally might. It could be just another instance of two large firms becoming an even larger firm, still struggling to make its way in a challenging marketplace. Or it might turn out to be the catalyst for unprecedented change in the profession worldwide.
At its recent annual meeting in Boston, the Association of Corporate Counsel dropped a minor bombshell by announcing it had created a law firm rating system. In-house lawyers can now rate their outside law firms on six criteria: understanding of objectives/expectations, legal expertise, efficiency/process management, responsiveness/communication, predictable cost/budgeting skills, and results delivered/execution. Even if these weren’t excellent criteria, which they are, it’s refreshing to see firms ranked on terms that signify value to clients, rather than by how much money they make or how well they score on the latest “Best Employer” survey.
But there are a couple of twists to this system. Larry Bodine points out the first: the ratings are only accessible by ACC members, not by the law firms themselves. That strikes me as counter-productive: a law firm can hardly be expected to improve upon ratings it never sees, so this doesn’t seem like a useful tool to motivate change. But I’m actually more interested in a second aspect of the ratings: they can be made anonymously. It’s up to the reviewing in-house lawyer whether to divulge his or her identity when delivering the law firm critique. To me, this is more problematic, and it illustrates a flaw in the growing client-rating movement.
We supposedly live in an age of internet-enabled consumer empowerment. Instead of relying solely on what a company tells us about its product or service, we can seek out the collective wisdom of other users. And if the matter at hand is a low-value proposition like whether a pizza place or iPhone App is worth trying, then great: you can afford to look just at the average number of stars out of five bestowed by unidentifiable computer users. But if the purchase has anything more than fleeting value, then you want some weight attached to the review in question — you need to know something about the reviewer. A lawyer review submitted anonymously, whether positive or negative, doesn’t have nearly enough weight to be meaningful. I raised the same objection to anonymous client reviews when Avvo debuted a while back.
Proponents of anonymous reviews could point to wildly successful peer-review systems like Amazon, where users don’t have to use their real names when reviewing products. But even if you post as your cat on Amazon, the system still links to all your other reviews, from which a reader can build a sense of your history, knowledge and biases and decide whether your assessment is worth any attention. Reviews by themselves are just opinions — they only become useful when you know something about the reviewer, when you can critique the critic. That’s the real benefit bestowed by widespread online access: not the power to evaluate, but the power to evaluate those doing the evaluating, to go behind the judgment to the judges. If you can’t do that — if you don’t know who’s saying great or terrible things about a given lawyer — then you can’t derive much value from what’s being said. People tend to be a lot more circumspect when their opinions are accompanied by their identity.
But the question of anonymous lawyer ratings points up an even larger issue — the fact that clients’ growing power needs to be matched by an equivalent acceptance of responsibility. Clients stand at the threshold of unprecedented choice and power in legal representation — they can hire a lawyer from anywhere they want, order a legal task to be completed by any of a growing number of innovative methods, demand to be billed in certain ways and up to certain financial limits, and so forth. And it’s all great fun and very empowering for the client, until the ramifications sink in: now they have to work a lot harder to choose their legal services providers and manage their legal affairs more closely.
Clients need to develop sophisticated and defensible systems for selecting and commissioning legal services providers — they can’t just outsource the whole thing to an outside law firm and dust their hands of the details. They need to demonstrate why a particular law firm was chosen over others, or why a law firm is doing a given task at all. They need to understand how legal tasks are unbundled, assigned and workflowed at least as well as their law firms do, and they need to come up with systems to monitor the progress of these tasks and how well they’re proceeding against various time, budget and effectiveness milestones — the process revolution in legal services is underway, but as Rees Morrison points out, many in-house counsel are no better trained at project management than their outside counsel are. Clients will discover that the price of having more choice is the requirement that the choice be exercised justifiably and managed systematically, and that neither will be a picnic.
It’s not so easy to rate a lawyer when your name is attached to the rating, and it’s not so easy to complain about intransigent outside counsel when the question of your own transigence is brought into play. So while it’s true that it’s becoming a lot harder to be a lawyer, I’d also argue that it’s about to become a lot harder to be a client.