Law firms’ shopping mall problem

The last time I went to a shopping mall was a week before Christmas. I had several people for whom I needed to acquire gifts (I’m an inveterate last-minute shopper), and I wanted to cover as little distance in as little time as I feasibly could to achieve that goal. The mall offered me convenient access to many different stores under one roof. But what’s interesting is that the mall itself did not sell me any goods or services of its own, other than two hours of parking. Everything I bought was from its tenants.

Empty shopping malls = seriously creepy.

Joshua Kubicki argues persuasively that the same model applies to law firms. (Not a flattering analogy, given the state of malls in 2019, but a pretty apt one.) In his essay “The Emerging Competitive Frontier in BigLaw is Practice Venturing,” Joshua contends that a large law firm’s myriad practice and industry groups are, effectively, standalone service businesses housed within a single platform that really only exists to host these businesses. The law firm’s true “customers” are not the firm’s clients, but its equity partners:

The firm is providing an ecosystem in which buyers (clients) and sellers (partners) can more easily connect and transact business. The firm itself is not producing or making anything other than facilitating exchanges of value between these two interdependent groups. While clients of the lawyers are paying a fee-for-service, the customers of the law firm, the equity partners, are paying for access to a business platform, much like store owners pay to be part of a shopping mall.  

This seems like a good model for understanding some of the most vexing problems in law firm management. For example, look at all the difficulties firms have encountered with cross-selling across their practice and industry groups.

In theory, proximity to other legal specialists  with deep client portfolios should be a business development gold mine. In practice, however, firms struggle to cross-sell because few lawyers are willing to risk referring “their” clients to their colleagues in other practice areas. But once you consider that these individuals aren’t “colleagues” so much as co-tenants running separate affiliated businesses in the same location, the problem becomes easier to understand. Baskin Robbins has little interest in referring its customers to The Gap one level down. 

So if the firm’s only clients are the equity partners in its various business units, what does it provide to those clients? Joshua identifies five benefits firms sell to their equity-partner customers: risk pooling (to combat practice cyclicality), shared services, branding, access to other specialties, and a funnel for new talent. There’s enough real value in these benefits to justify an individual practice group’s (read: standalone business’s) decision to remain within the firm. Or at least, there used to be.

Joshua relates how the immigration law practice at Epstein Becker pulled up stakes recently and moved out — but not to another full-service firm. The lawyers and staff moved en masse to Berry Appleman Leiden, a specialist immigration firm. Joshua surmises that the equity holders within the immigration practice were finding the benefits of the broad full-service platform less appealing at a time when immigration practice requires serious investments in technology and process improvement to stay competitive. Since Epstein Becker seemed happy to facilitate this move, the firm appears to agree that parting ways was the best option.

Joshua’s article goes on to make a number of other insightful points, but I want to dwell on the implications of this one. Because it’s not only immigration law practices that will need significant customization to their business model to stay afloat in a more demanding and competitive market.

The same would apply, for example, to labour and employment law groups: They will struggle to compete with specialty shops like Littler Mendelson and Ogletree Deakins, which turn a profit on increasingly low-margin work by running their operations very efficiently and building systems to collect client data and turn it into a value-added service. The same would apply to IP groups facing off against specialty boutiques, insurance law practices taking on insurance-focused giants, and so on. Litigation practices will need e-discovery and outcome prediction capacities. Corporate law groups will require investments in due diligence AI and contract management and analysis software.

Every individual practice group within the firm, in other words, will eventually require some specialized application or technician or relationship that will have value primarily or only to that group. It’s one thing for partners to underwrite the firm-wide costs of marketing personnel and law libraries and IT functionality, because these are features that deliver more or less the same benefits to all groups. But when individual practice and industry groups (the mini-businesses) engage in what Joshua calls “practice venturing,” things can take a sudden turn.

Practice venturing is designing a new business model through the process of discovering, testing, validating, and launching (and perhaps buying or selling) a new strategy and value proposition, a new market or customer segment, and a new business model. …  It is about reengineering a practice to better address client needs and opportunities. When done completely, often something new that departs from the traditional legal service model is created.

Practice venturing does bend (and sometimes breaks) the law firm business model …  [T]o succeed at practice venturing, the groups not only need to focus on validating their changing business, but also have to focus on organization adoption of their changing business. This creates stress, dissonance, confusion, and often outright hostility toward the practice group.

The law firm can make only so many concessions to its individual “tenants” before its other customers (the other equity partners) start asking why they’re paying for so many features that have no relevance to their own work.

In time, evolving client demand and competitive circumstances could eventually require each specialized legal business inside the law firm “mall” to figure out what structure and model will make it most competitive and profitable in its market. If the law firm can’t find a way to accommodate those structures and models within the firm, then the group, like Epstein Becker’s immigration practice, will migrate elsewhere to find what it needs.

Lots of space in this firm.

If this theory holds up, then there’s some serious turbulence on the way for those full-service law firms that are what we always suspected them of being: hotels for lawyers, malls for practice groups, farmer’s markets for legal services. They lack any real operational direction or managerial sophistication, and they are owned by people who don’t really value either one of these things. It’s probably not going to end well.

The winners, by contrast, figure to be those firms that are both culturally cohesive and operationally agile. The cohesion allows the firm to have a more mature and sophisticated relationship with its equity partners than simply landlord and tenant, and to persuade the partners that spending money to improve the competitiveness of one business unit will generate more profits and opportunities for everyone in the firm. The agility will allow it to assemble and plug into the firm’s infrastructure the specialized pieces that each business unit needs without bringing the whole platform down in a heap. 

Can we envision any firms with this combination of cohesion and flexibility that could make these kinds of adaptations? I think so. Here are a few headlines from the legal press that have turned up just in the last few months:

Subsidiary businesses, technology nurseries, data analysis applications, and lower-cost spinoffs are some real-world examples of what law firms can accomplish when they acknowledge and respond to growing competitive pressures on specific markets, practices, or industry groups. Some of these new initiatives will pay immediate dividends across the firm, which makes partner buy-in easier; but some of them — and I suspect in future, more of them — will have narrower applications whose immediate benefits will be clear only to certain segments of the firm. That’s when the real test of the firm’s leadership and cohesion begins. 

One last thought: The main reason why I go to malls so rarely, of course, is that I shop more frequently at the world’s biggest and most convenient mall at Amazon.com. There are still some purchases for which I need direct experience with the product and in-person service from an expert — shoes, clothes, maybe a “genius” at the Apple Store. But for most everything else, including a growing array of big-ticket items, I just go online. Law firms should think about that, too.

Starting from scratch

Suppose that, tomorrow, you needed to create a business that provides legal services — but law firms had never been invented, and you didn’t have that reference point to use as a template. Being a sensible and forward-thinking person, you might come up with an entity that featured many of the following characteristics:

  • A privately owned corporation, perhaps with significant initial venture capital and the possibility of an IPO down the line, to assure yourself of operating and investment funds.
  • A focus on markets where incumbent providers (lawyers) are scarce and where potential customers are therefore underserved and plentiful (say, consumers and small businesses).
  • A range of affordable legal document assembly tools, accessible online 24/7, that can deliver extremely high-margin solutions to the basic legal needs of your customers.
  • A network of reliable local lawyers to whom your customers’ more complex legal matters can be referred, and for whom your brand and market reach constitute a powerful marketing force.

In other words, you might wind up creating something like LegalZoom

Now suppose that, tomorrow, you needed to create an entity that resolves legal disputes, but courts had never been invented and you didn’t have them to use as a template. You might come up with an entity that featured many of the following characteristics:

  • It recognizes that what people desire most in dispute resolution is speed and affordability, and so it would prioritize these two objectives on par with any other consideration. 
  • It accepts that the best way to help people access dispute resolution is to meet them where they are, and so it would be native to and entirely contained within an online environment.
  • It acknowledges that relatively few disputes truly require lawyers to resolve and even fewer really need judges, and so it discourages or does away with the use of either.
  • It understands that continuous improvement is the key to any effective service, and so it engages in an ongoing process of intense user feedback and system enhancements. 

In other words, you might wind up creating something like the Civil Resolution Tribunal in British Columbia (or the HMCTS Public Law Project in Great Britain).

And suppose that, tomorrow, you needed to create a way to provide legal assistance to low-income people, but legal aid had never been invented and you didn’t have that to use as a template. Once again, you might come up with an entity that featured many of the following characteristics:

  • Solutions begin with and are centred around the root causes of the problem, because legal matters are only one dimension of the multi-faceted “life matters” that people encounter.
  • Legal services are co-designed with and collaboratively directed by partners in the community where the people live, rather than designed and delivered solely by a single heroic outside lawyer. 
  • Legal assistance is channeled through those community partners that have strong relationships with community members, rather than through one-off fixes provided to individual clients.
  • Legal services are provided between 4 pm and 10 pm, because that’s when most individuals with jobs, kids, or parents to take care of actually have the time available to seek legal help.

In other words, you might wind up creating something like the Community Activism Law Alliance in Chicago.

Take a moment to consider that none of these three foregoing entities was created by a legal organization, a law firm, or a court — and in fact, one of them is an international success despite opposition from and prosecution by the legal profession for most of its existence.

Now, it’s likely that if you were to take on those three design challenges above, the entities you’d come up with would differ in various ways from my three examples. But I’m also pretty sure of this: 

  • If you’d never heard of law firms, and you needed a way to deliver legal solutions, you wouldn’t invent a business owned and operated solely by lawyers that sold their effort, used little technology, and had no access to non-lawyer capital.
  • If you’d never heard of courts, and you needed a way to resolve disputes, you wouldn’t construct ornate buildings in downtown cores that are 70% idle space, can only be used effectively by lawyers, and are unbelievably slow and costly. 

    Is this really what you’d build tomorrow to resolve legal disputes?

  • If you’d never heard of legal aid, and you needed a way to give poor people access to legal services, you wouldn’t come up with a system by which governments pay people from the first place to take problems to other people in the second place to find a solution. 

When you look at the traditional institutions of the legal services market — and not just law firms, courts, and legal aid, but also law schools and legal regulators — hardly any of them are what we would invent today if we needed to solve the problems they’re meant to address. If we had to start from scratch in all these areas, we would:

  • understand in detail the goal(s) we’re trying to achieve,
  • design around the end user or service recipient,
  • use only the tools and resources we truly need,
  • prioritize speed, accessibility, and affordability, and 
  • constantly improve through assessment and user feedback.

As we all know, the traditional institutions of the legal profession and the legal services market have become slow, costly, inefficient, and inconvenient. Many people and a whole lot of money have been deployed trying to make these institutions faster, affordable, efficient, and convenient. These efforts, for the most part, have fallen short or failed altogether, as these institutions have also proven remarkably impervious to reform and innovation.

But maybe we’re going about this all wrong.

Rather than trying to fix law firms, reform courts, and save legal aid, we could recognize that maybe these institutions were meant to function (and did function, very effectively) in a different set of social and economic conditions than we have today. And maybe, as a result, we should instead strive to identify, build, legitimize, and support other ways of delivering legal solutions and resolving disputes promptly, affordably, and accessibly. 

I’m not saying we should dissolve law firms, shut down courts, and defund legal aid. I’m saying that we need to supplement these old means of providing legal services with new ones that are better adapted to the world we live in, not the one our parents or grandparents lived in. Create more channels. Open more pathways to solutions. Give other options a shot.

Could we have legal services without law firms, dispute resolution without courts, legal help for the poor without legal aid? Many lawyers would say that’s unthinkable. But we buy books without bookstores, get music without record stores, see movies without theatres — and not that long ago, these were all unthinkable too. 

But Amazon, iTunes, and Netflix didn’t destroy bookstores, record stores, and movie theatres. All these business are still out there — a lot fewer than there used to be, sure, but no more than the market requires. And they are catering to people who want a different and richer experience than simply buying and consuming content online. The new options haven’t eradicated the old ones — they’ve allowed the old ones to find their core customer base, and given everyone else much more choice and convenience than they ever imagined they could enjoy. 

Not dead yet.

Would you give up Amazon, iTunes, and Netflix — and all the choice, convenience, and accessibility they’ve given you — so that we could revive bookstores, record stores, and movie theatres? I think it’s unlikely. Well, someday down the line, someone will ask the equally inane question: Would you give up LegalZoom so that we could have more law firms? Would you give up online dispute resolution so that we can open more courthouses? Would you give up community legal networks so that we could return to the golden age of the perennially underfunded legal aid certificate? 

We need more LegalZooms, more CRTs, and more CALAs. We need to authorize them, fund them, and support them. They’re not going to replace law firms, courts, and legal aid; they’re going to relieve these older institutions of the burden of trying to be everything to everyone in every circumstance — the burden of monopoly. Fighting to preserve that monopoly will go down in history as the least sensible and enlightened thing the legal profession ever did.

It’s time we stopped fighting. It’s time to set aside our preconceived ideas and conventional wisdom about what our legal institutions ought to look like. It’s time for us to start from scratch. 

After the millionaires

Earlier this week, I was gifted with the opportunity to join Mark Cohen and Mitch Kowalski on a webinar panel addressing a course in law firm management for international exchange students at the Bucerius Center on the Legal Profession in Hamburg, Germany. I had the enviable task of opening the panel with remarks around the theme, “What’s ‘broken’ with the classical way of doing things in law?”

In case it’s of any interest to you, especially if you’re just entering the legal profession or on the cusp thereof, I thought I’d pass along my speaking notes, lightly embellished with other observations I offered during the subsequent Q&A period.

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Richard Susskind has come up with many observations about why it’s so hard to bring about change in law firms. His most famous observation is one you’ve probably already heard: “It’s very difficult to tell a roomful of millionaires that their business model is wrong.”

I can attest to the truth of that statement, but there’s something important about it that we often overlook: The room is full of millionaires. And they’re millionaires for a reason: Their business model has been insanely successful.

Look at the AmLaw 100, the most profitable law firms in the United States. You have to go down to #75 on the 2018 list before you find a firm where the average equity partner took home less than US$1,000,000. That’s the average. At least half the partners in the top 74 firms took home more than that.

I like my job, I’m pretty good at it, and I’m one of a handful of people in the world who gets paid to do it. But I can tell you that I’m not making a million dollars this year and I don’t anticipate doing so anytime soon.

We now take you live to the AmLaw 100.

I think we need to grapple with these millionaires in the room and figure out what they mean for the legal innovation project. This isn’t just because of the obvious difficulty in persuading rich equity partners to abandon a business model that puts Porsches in their garage. It’s also because those Porsches themselves constitute a pretty good argument that the business model is actually right. It has made tens of thousands of lawyers amazingly rich. So what’s the problem?

From my point of view, the problem is twofold.

The first element of the problem is that the law firm business model has been amazingly successful and remunerative only for an exceptionally small number of lawyers. The great majority of private-practice lawyers work in firms of 20 lawyers or fewer, and most of them do not make a million dollars a year. Many of them earn in the low six figures, sure — but so do good electricians and senior civil servants. Quite a few lawyers earn less, sometimes much less, than $100,000 a year. And almost all lawyers, regardless of income, work really hard, sometimes as hard as the ultra-rich ones who are fortunate enough to have clients with very deep pockets.

The financial rewards of law practice are very unevenly distributed. That’s something law students aren’t often told, but it’s important to keep in mind as you start your careers. A few of you will win the fabulous compensation lottery. The rest of you will be over here with us, redeeming the cup-of-coffee consolation prize. The law firm business model is a runaway success only for a select few.

And rest assured, the millionaire lawyers have paid the personal price required to get there. I’ve known law firm partners who kept photos of their spouses and children on their desk, and thought to myself that they do that so they can remember what those people look like.

The second element of the problem, and I think the more significant one, is that the conditions that allowed many of these lawyers to become millionaires are starting to pass away. The traditional law firm model developed in a particular set of market circumstances. A new set of market conditions is now emerging, and the traditional firm is not really set up to deal with them.

This is an important point: It’s not that the law firm business model itself has suddenly stopped making sense. It’s never made that much sense, really. In most markets, working however you liked and charging whatever you wanted while passing on all your costs to your customers is not normally a winning proposition. But it works very well when you, as the supplier of services, enjoy:

  • exclusive access to the tools that allow people and businesses to accomplish their goals,
  • the exclusive right to sell these services, since you also have the right to regulate new competitors,
  • a client base that experiences extreme difficulty when trying to value your services, and
  • a client base lacking the knowledge, agency, and confidence to assert themselves with you.

In those circumstances, your biggest problem is not how to make money, but how to spend it all before the next truck full of it is dumped on your lawn.

But those circumstances are changing, and with them, the environment in which legal services are bought and sold is being gradually transformed. Call it “legal climate change,” if you like. The law firm business model is a lovely flower that developed and grew tall in the bright sunshine and gentle breeze of a long, lazy summer. But as they like to say in Westeros, winter is coming.

Here’s what’s the market for legal services has been experiencing over the past decade or so:

  • the emergence of new providers of legal services and solutions other than lawyers and law firms,
  • the decreasing relevance of regulatory restrictions against “non-lawyer” legal service provision,
  • the evolution of alternative fee approaches by which legal value can be identified, measured, and priced, and
  • the growth of clients’ confidence in asserting their rights as full participants in their legal solutions.

Lawyers and their law firms need an answer to these challenges. So far, they’ve found very few — mostly, I think, because they haven’t been looking all that hard. The millionaires aren’t looking, I can assure you. They have their eyes squarely focused on their own rapidly approaching finish lines, and they have no interest in accelerating the decline of the machine that prints money for them.

These lawyers are invariably older than average — in some cases, really old. And old people know better than most what the approach of winter feels like. They’re the ones who come up to me following my presentations and say, “I’m really glad I’m retiring in five years.” How delightful for them — I hope they enjoy their remaining years of practice and that lovely summer home in Tuscany they’ve had their eye on. But it doesn’t do much for the younger people they’re going to leave behind.

Soon enough, Richard Susskind’s problem will be solved in the simplest fashion possible: The millionaires will get up and leave the room themselves. Some will go willingly. More of them will go reluctantly, sometimes bitterly. A few of them, to be blunt about it, will be carried out — I’ve heard a number of lawyers “jokingly” say they intend to leave their firms feet-first. The millionaires will move on — though I wouldn’t count on them to be especially gracious about it.

But when that happens, it will leave the room, and the challenge, and the opportunity, to those they’ve left behind — to you. As you contemplate that inheritance, and mull over whether you even want it and what you would do with it if you did, I’d like to offer a few points of advice in closing.

  1. You don’t have to accept the model that’s been bequeathed to you. It was built by people with different values and priorities than you, in a different world than the ones you’re going to inhabit. Identify and retain the good and the valuable in that model. But be ready to jettison whatever lacks value to you or to your clients, and don’t second-guess yourself once you do.
  2. You should strive to incorporate other professionals and technicians into your new model, both internally (for productivity and quality) and externally (for client service and value). The future of legal services provision is multi-disciplinary. I don’t really care, to be honest, whether everyone in your room ends up a millionaire. But do not allow everyone in your room to be a lawyer.
  3. When building your new model and approach to selling legal services, start with clients. Go out and talk to people about their legal affairs, to business owners and managers about their legal challenges, and listen to the answers. Do not build your new models on the bones of the ones that came before you, or on the latest high-minded theory or management fad. Build them in response to the real needs of real people in the real world.

If you build legal services businesses that respond to current and future environments, to the needs of the clients in the markets that you want to serve, then what you build will be successful and sustainable. That’s all anyone can ask — and really, it’s all you’re ever going to need.

How compensation plans are wrecking law firms

The greatest threat to the survival and success of law firms today is not client empowerment, or Big 4 accountancies, or artificial intelligence, or even generational change. These and other trends will have a significant impact on law firms in the years to come — but none of them is actively working to undermine law firms’ productivity, hobble their strategic efforts, and compromise the health of their lawyers.

What’s killing law firms these days is their lawyer compensation systems.

Law firms incentivize their lawyers to act in ways that are counter-productive to lawyers’ happiness, clients’ satisfaction, and the firms’ effectiveness. They do this by rewarding lawyers for bringing client business into the firm and billing hours to the firm’s clients, and for hardly anything else. In the vast majority of firms that I’ve encountered (and in the mini-survey below), these two activities account for at least 75% of lawyer compensation; in more than half those firms, they account for 90% or more.

Small sample size, yes, but still….

Law firms seem to believe that by paying lawyers to do almost nothing beyond finding clients and billing work, they’re supercharging the firms’ productivity and profitability. I believe that instead, firms have unintentionally bred a host of negative behaviours — or at best, neutral behaviours with negative consequences — that poison law firm culture and sabotage client interests.

(Note that I’m not talking about the fact that law firms sell their work on an hourly basis. This isn’t about how law firms sell their services, but about how they pay their lawyers. Despite appearances, they’re not the same thing.)

Here are nine ways in which the priorities of law firm compensation systems are antithetical to sustainable law firm success.

1. Lawyer effort > Client outcome. This is the clearest impact of disproportionately paying lawyers for billing hours. The lawyer’s financial priority — maximize personal time and effort — is disconnected from (and frequently in direct opposition to) the client’s priority, which is to address its issue quickly and affordably. A lawyer whose bonus (or salary, or continued employment) hinges on meeting a billable quota will subject a client matter to intense scrutiny and repeated review, well beyond what is necessary to ensure the competent execution of the matter. When you pay lawyers for hours rather than results, hours are what the client will get. This happens in virtually every law firm, every day, all over the world. It’s as close as you’ll get to a universal law firm experience.

2. Customer sales > Customer service. And this is the clearest impact of disproportionately paying lawyers for bringing in clients. Most law firms reward successful sales efforts by their lawyers, as they should. But these rewards are so outsized — in terms of money, prestige, and power — that they lead lawyers to prioritize finding clients over serving clients. The longer the period of “origination credit,” the worse this tendency becomes: Everyone wants to land clients, but hardly anyone is equally motivated to actually serve them. The myth of the rainmaker has captured lawyers’ imaginations; the humble “service partner,” equally as vital to the firm’s success, is undervalued. That’s why clients are very familiar with great sales efforts by lawyers, but much less familiar with great lawyer service.

3. Personal success > Firm success. I’m not arguing that “clients landed” and “hours billed” aren’t important to law firms’ success; obviously, they are. But most compensation systems don’t pay lawyers to do anything else, or they pay them in much smaller amounts. In most law firms, there are few if any financial rewards for managing people or processes, maintaining strong client relationships, marketing and promoting the firm and one’s colleagues, mentoring juniors, building the firm’s knowledge base, and countless other aspects of truly well-run and well-rounded legal services enterprises. Compensation systems see law firms as entities that require only clients and hours to survive; if that was ever true, it no longer is.

4. Financial gain > Personal well-being. The rates of depression, substance abuse, and even suicide within the legal profession are significantly higher than in other walks of life. Certainly, law is a stressful and demanding career no matter where you work. But compensation systems intentionally incentivize lawyers to work as hard and as long as they can. Virtually every law firm sets a minimum number of billable hours as a condition of employment; I don’t know of any that set a maximum, a cap on the number of hours that will be rewarded. The only limit to your earning power is how many hours of your life you’re willing to burn. Magnifying and exploiting lawyers’ weakness for individual achievement and financial gain is simply shameful.

5. Individual achievement > Collaborative activity. Law firms (almost) universally pay lawyers for their individual efforts rather than for group accomplishments. It’s the culmination of a lifetime of lawyer incentives, beginning in law school (compete against other students for top grades) and continuing through the associate years (compete against colleagues for top assignments and lanes on the partnership track). Law firm culture is notoriously competitive, a zero-sum game in which someone else’s gain will come at your expense. The numerous benefits of internal collaboration — for cross-selling, for quality control, for morale, and above all for client outcomes — never materialize, because firms don’t pay lawyers to collaborate. They pay them to work hard and achieve on their own.

6. Partner billing > Associate billing. I’ve never fully understood why partners are incentivized to bill hours; I always thought half the reason to become a partner was that you didn’t have to labour in the billable salt mines anymore. But because firms compensate partners for hours billed, partners are conflicted when assigning work: Give the task to an associate or keep it for yourself? Partners are motivated to choose the second option, especially in lean times, because they directly benefit financially. In the result, the junior doesn’t get enough work to stay busy and become more skilled, the firm doesn’t benefit from the profitability of associate leverage, and the client gets associate work performed at partner rates. Nobody — not even the overworked, under-challenged partner — truly benefits.

I’m sorry, but I’m not allowed to argue unless you pay me.

7. Billings > Collections. While we’re on the subject of the mystifying aspects of law firm compensation, let’s talk about the fact that most systems pay lawyers on the basis of the hours they’ve billed, not on the number of hours the firm actually collects. You’d think that law firms would at least line up compensation with revenue; but no, it’s enough in many firms merely to bill the hours, regardless of whether the client pays them. This incentivizes lawyers to bill beyond the client’s wants or needs, since the consequences of the inevitable writedowns won’t materialize for many months, if at all. Paying lawyers for their realized bills, not their issued bills, as Ivy Grey suggests, would be a simple first step towards rationality here.

8. Men > Women. There are myriad reasons why men continue to outnumber women in most law firms by about 65% to 35% — and in the equity partner ranks, by about 85% to 15% (and out-earn them, too). But chief among those reasons are law firm compensation systems — and related advancement and promotion systems — that pretend everyone is equally able to bill hours and bring in business. In a world where women still disproportionately bear the burden of child-raising and home management and are resented for being as aggressive and entrepreneurial as men, that pretence is insupportable.  As I’ve written before, the men who built, own and control the law firm benefit directly from time- and effort-based remuneration. It’s an unconscionable waste and abuse of (female) human capital.

9. Client isolation > Client peace of mind. Lawyers paid to bill hours are motivated to turn ordinary time into docketed time. The easiest way to do that is to pick up the phone when the client calls: Every minute spent listening to and answering a client query, no matter how trivial, can be converted to cash. Clients have responded logically, by not calling unless they absolutely must, because they know the meter goes on at the first moment of contact. Rather than be charged a huge hourly rate to ask a question, they’ll stay silent and anxious about the answer. Good lawyers don’t want anxious clients afraid to call them; but compensation systems don’t care. (And the corollary is even worse: When you pay lawyers for their efforts, you also train them to make no efforts unless they’re getting paid for it.)

Can law firm compensation be fixed? Only with immense difficulty, I suspect. If you’re touching a law firm’s compensation system, then you’ve made your way deep into the heart of the law firm machine, into the belly of the beast. If the law firm’s fundamental purpose is to generate short-term profits for its equity partners — and I’ve argued in blog form and in book form that at most law firms, it is — then you’re tinkering with the most important and sensitive aspects of the firm. I frequently refer to compensation as “the third rail” of law firm management: everyone is afraid to touch it. And as we’ve seen above, many people in law firms have a deeply vested interest in ensuring that it is not touched at all.

I am not, emphatically not, a compensation consultant. (Here’s someone who is.) But unless you’re starting an entirely new law firm from scratch — or you’re performing a tear-down and rebuild of an existing firm so complete that it amounts to a new start — I’m highly doubtful that you can change an entire compensation system in one go.

But I do think you can change just one element of it. And if you can manage to do that successfully, then in time, you can change another, and then another — until one day, like the proverbial shipwright who keeps replacing individual parts of the vessel, you’ll find that you’ve effectively produced a brand new ship.

Here are a few quick suggestions about that one initial element to change.

  • Place a hard cap on the number of annual billed hours for which any lawyer (especially an associate) will be rewarded. Beyond 1,300 or 1,800 or 2,150 hours (choose a number that works for your market and is consistent with strong but not superhuman effort), the lawyer can bill all she likes, but she won’t receive any greater bonuses or remuneration. If for no other reason than to save your lawyers from burnout, cap the incentives that make them work harder.
  • Place a much lower limit on the number of annual billed hours for which partners will be rewarded. The whole point of law firms is that work should be driven down (where appropriate) to lower-cost talent so that (a) their leveraged work can generate partner profits, (b) they can gain experience and become more skilled, and (c) partners can devote their time and energy to sales, service, management, and personal improvement. Stop rewarding partners for behaving like associates.
  • Tie a small (but annually rising) percentage of lawyer compensation to the results of client satisfaction surveys conducted during and after a client matter. Law firms say they want satisfied (if not delighted) clients. Well, you get what you pay for. Incorporate “client’s assessment of service and care” into the lawyer compensation formula, and be amazed at how quickly you develop a solicitous and service-oriented legal workforce.

The first step in this whole process, and maybe the most important step, is to break the longstanding law firm assumption that there is a direct and equal correlation between revenue and compensation. If you’re running a sole practice, that correlation makes perfect sense. But if you’re running any kind of multi-lawyer enterprise, then your goal is to maximize not individual revenue, but sustained enterprise profitability. That requires a completely different approach to, among other things, the types of behaviours and activities that you are motivating your lawyers to do and rewarding them for performing.

Some lawyers’ payments are simpler than others.

One lawyer might bring in lots of clients that don’t stick around or bill lots of hours that get written off, while another lawyer keeps people motivated and clients engaged with little fanfare. Which lawyer is creating more value for your firm, today and down the road? You need to know the right answer to that question — and then you need to adjust your firm’s compensation priorities accordingly.

One final thought, and a note of caution, on this whole subject.

There are limits to what you can or should ask a compensation system to do for your law firm. Because really, in very practical terms, a lawyer compensation system has exactly one purpose: to compensate lawyers. That’s it. Trying to use it to modify lawyer behaviour, or to signal strategic priorities, or to bring about cultural change, will work up to a point. But it’s like propping a chair up against a door to keep it closed: That’s not really what the chair is designed for, and it’s not going to do the job terribly effectively or long.

In a recent conversation, Felix Rackwitz of TPR Legal in Frankfurt pointed me to Herzberg’s Motivational Theory, which identifies salary as an extrinsic “hygiene” factor that doesn’t really drive employee satisfaction or motivation (although it can create dissatisfaction if managed poorly). If you want to positively affect employee behaviour, you should provide motivational factors like challenging work, personal recognition, growing responsibility, involvement in decision-making, and a sense of importance to the organization. (Here’s an article applying Herzberg’s model to law firms.) Law firms can’t always (or don’t always want to) provide these factors, so they ask compensation to play the motivational role instead. That’s more than it can realistically handle.

So when it comes to your law firm’s compensation system, I’d like to suggest these two pieces of advice:

1. Identify all the negative outcomes that your current system unwittingly generates — compromised clients, damaged lawyers, poor collaboration, lousy diversity, etc. — and strive to change the system to diminish if not eliminate them altogether. Running a law firm is hard enough in the best of circumstances; undermining both your clients and your lawyers with a self-sabotaging compensation system makes it far more difficult than it needs to be.

2. Identify all the positive incentives that your current system is supposed to create, and dial back your expectations of what can be accomplished this way. If you want to motivate your lawyers, give them interesting work, praise their accomplishments, involve them in organizational decisions, and so forth. Throwing money at them, trying to push them one way or another with the promise of more money (or the threat of less), likely won’t get you all that far.

Your firm’s compensation system doesn’t have to be the cause of all your problems, or the answer to all your woes. Maybe it can just be a good way to pay your lawyers without simultaneously wrecking your firm.

Partner succession and law firm ownership

What follows might look like a proposal to address law firm partner succession challenges. But it’s actually a thought experiment in regulatory policy for the legal profession.

As the Boomer generation of law firm partners continues to exit the demographic python, firms increasingly struggle with partner succession challenges. The unwillingness or inability of senior lawyers to transition their practices to younger colleagues has many contributing causes, including:

  • The partner’s refusal to begin winding down and transitioning his practice at its most profitable point,
  • The partner’s desire to sustain the power and privileges of his influential position within the firm,
  • The partner’s reluctance to face the looming end of a career that has given his life definition and value,
  • The partner’s unreadiness to “return to civilian life” after decades in a cloistered law firm environment, and
  • The partner’s misgivings about whether a junior colleague could replace him or serve his clients as well.

    They never want to go.

The degree to which any of these factors plays a role in the succession challenge varies from partner to partner. But I think the first factor in that list — the partner’s unwillingness to shrink and eventually cut off what is probably a substantial income derived from partnership — is common to virtually every case of “succession-itis.”

Once you leave the equity circle of a law firm, your entitlement to receive any share of that firm’s profits, regardless of how important your contribution to the firm’s success might have been, comes to a swift end. This, of course, is because legal regulators in most jurisdictions prohibit ownership of law firms by anyone who is not a lawyer (But see California.) Or, to be more precise, anyone who is not a practicing lawyer. And that brings me to the proposal: What if lawyers could maintain their equity in law firms after they retired from practice?

Suppose your jurisdiction amended its ethics rules such that a lawyer who holds equity in a law firm could maintain that equity, or some portion thereof, after she retired from practice. That lawyer would no longer face the prospect of an immediate end to her legal income stream, thereby removing a significant disincentive (although not the sole one) to her retirement. This continuing revenue could serve as a sort of “pension” for partners who otherwise must fund their own post-retirement income. Moreover, since this income would depend upon the ongoing success of the firm, the partner would be incentivized to properly transition her practice and clients to a competent younger lawyer, perhaps one whom she’s been grooming for years. If the firm flounders after she leaves because she did a poor job of practice transition, she would be jeopardizing her post-retirement income stream.

Now, regulators being regulators, they could and likely would create various limitations on this post-retirement equity position. They might rule that post-retirement equity requires X years of partnership in a firm before it kicks in, or that the equity share cannot be transferred and expires upon the partner’s death, or that the partner forfeits this share if she joins another legal services supplier or is appointed to a court or tribunal, or that the equity share would be capped at 65% of a practicing partner’s share, that sort of thing. We can play with the permutations and exceptions all day.

But I’m more interested in how the regulator would view the underlying premise of the proposal. Because while I think it’s very unlikely that this change to law firm ownership rules will occur anytime soon, it’s the policy challenges that I think are worth examining.

Upon what basis would a regulator turn down this proposal? What would be the objection to allowing retired lawyers to own equity in a firm? I suppose you could argue that a lawyer who no longer actively participates in the partnership should not be entitled to any income from the firm — but that’s hard to reconcile with the fact that a legal secretary who retires from the same firm is entitled to a pension funded from her own contributions of both hard work and money over many years. Why should a lawyer not have the right to receive an ongoing financial payout from a firm she helped to build into a success?

We’re not lawyers! We’re not worthy!

The potential objections around “non-lawyer” ownership are also interesting. Should a lawyer who retires from practice be considered a “non-lawyer,” the same as someone who never attended law school and practised law? Does the retired lawyer no longer meet the “character and integrity” tests that evidently separate people who are lawyers (worthy of law firm ownership) from people who are not (and therefore not worthy)? Unless we argue that lawyers lose their qualifying degree of character and integrity when they stop serving clients — and I don’t think any legal regulator wants to make that argument publicly — then I’m not sure of the policy position against this idea.

I’m not seriously proposing this change to the ethics rules, for what it’s worth — it likely would prove highly cumbersome to formulate and a huge hassle to regulate and enforce. (Although I’ll wager that, if such a proposal ever did make its way to a regulatory body, it would provoke keen interest from every lawyer over 60 on that body.) I’d much prefer comprehensive, principled reform of law firm ownership rules, rather than piecemeal exceptions that are, once again, all about the lawyers.

But I do think this thought experiment can focus our attention on the presumption behind the “only lawyers can own law firms” rule: that lawyers deserve to own law firms and “non-lawyers” do not. Why is that? What is it about lawyers — precisely and in detail — that qualifies them to own law firms? What is it about “non-lawyers” — precisely and in detail — that disqualifies them? What happens to a person when they leave the “lawyer” category and join the “non-lawyer” category? Are they downgraded somehow, and if so, in what respects, and why?

I don’t have good answers to any of these questions. But I’d be very interested in learning what the answers might be.

The cause of, and solution to

George Meyer, producer and head writer of The Simpsons in its glory years, was once asked about his favourite line from the show’s run. He cited the closing scene from the Season 8 episode “Homer vs. the Eighteenth Amendment,” in which the town is celebrating the end of a brief period of Prohibition. Homer stands atop a pile of beer barrels, hoists a sudsy glass, and proposes a toast to the gathered crowd: “To alcohol! The cause of — and solution to — all of life’s problems.”

And the series was all downhill from here.

In a similar vein, I would like to propose, if not an actual toast, then an explanatory observation for the business of legal services: “To lawyers! The cause of — and solution to — all of law firms’ problems.”

Take a moment to review the most frustrating afflictions of your own firm, or if you’re a client, the firms with which you do business. From an internal perspective, firms are bedevilled with difficult personalities, intra-competitive strife, short-term profiteering, and a focus on the interests of individual partners rather than on those of the firm. From an external perspective, problems include unpredictable pricing, lack of responsiveness, widespread inefficiency, and a failure to identify and focus on client value.

These are not problems created by tough competition or demanding clients. They are not challenges inherent to the delivery of legal services (as opposed to, say, accounting or architectural services). These stumbling blocks to happy, healthy, productive, and value-enhancing law firms arise from the decisions and behaviours of the lawyers who own, design, lead, and manage law firms and who price, sell, produce, and deliver their services. In a business where every facet of production and every detail of strategy is controlled by lawyers — and where every dollar of profit and accolade for success goes to lawyers — there really isn’t any other place to assign responsibility for the business’s shortcomings.

This is not a jeremiad against lawyers, much as it might resemble one. The problem is not that lawyers are bad people; the problem is that lawyers are doing too many things in law firms that they’re not best qualified to do. Lawyers in law firms are wearing far too many hats.

Let’s consider the sheer ubiquity of lawyers throughout the law firm business:

  • Who owns law firms? Lawyers. For the moment, anyway, only lawyers are permitted to own equity in law firms.
  • Who designs law firms? Lawyers. Most firms evolved haphazardly from lawyers’ longtime, habitual business activities.
  • Who leads law firms? Lawyers. Most law firms are led by managing partners, occasionally in conjunction with a chief administrator.
  • Who manages law firms? Lawyers. To the extent there is any formal management function in law firms, lawyers occupy it.
  • Who prices legal services? Lawyers. They set a billable rate, track their hours worked, do the math, and bill the result.
  • Who sells legal services? Lawyers. The most successful ones are “rainmakers.” The least successful ones are asked to leave.
  • Who produces legal services? Lawyers. More than 99% of law firm inventory is lawyers’ billed time and effort.
  • Who delivers legal services? Lawyers. Much client contact and most service provision is conducted by lawyers.

This isn’t even an exhaustive list of every facet of law firms. Purchasing approvals, hiring decisions, compensation systems, marketing priorities, everything down to the choice of colour for the firm logo — lawyers are in charge of it, lawyers spend their time and energy to accomplish it, and lawyers jealously guard their power over it.

As if the Oobleck wasn’t bad enough.

Lawyers wear almost every hat there is to wear in law firms. They do this for three reasons:

  1. Because they always have.
  2. Because they need to be in control.
  3. Because they believe they can do these tasks as well or better than anyone else.

I couldn’t tell you which of these three behavioural drivers — tradition, authority, ego — is the most significant. I only know that all three are immensely important to lawyers and are incredibly difficult to talk them out of. But the end result is that lawyers in law firms have overburdened themselves, taking on too many responsibilities that lie outside their expertise and not doing any of them as well as they ought to be done.

Here’s my complete list of the law firm roles and activities into which I think lawyers ought to be investing their time, talents, and efforts:

  1. Using their legal expertise and judgment to create client value.
  2. Using their personal empathy to strengthen client relationships.
  3. Using their ethical compass to guide the firm’s vision and direction.

Come up with solutions that meet clients’ needs and opportunities, build relationships of trust and reliability with those clients, and provide the firm with the vision and wisdom to run a successful and sustainable professional business. Nobody else in law firms can fill these three roles as well as lawyers can — collectively, they represent lawyers’ unique value proposition to their own firms. Other individuals and resources should supplement lawyers’ efforts in these areas, of course, but lawyers should have the lead role and primary responsibility.

But that’s the extent of it. Lawyers in law firms should have a three-hat maximum. Putting any other hats on top of those is distracting and counter-productive. Here are just three roles that lawyers should at least share with qualified personnel, if not relinquish control over completely.

1. Law firm workflow. There are much better legal workflow systems available today than “Lawyers work until they’re finished and then bill their efforts.” We can build knowledge and experience management systems, create project management frameworks, use technology to do work faster and cheaper, and re-route simpler tasks to lower-cost performers. Judging from Baker & McKenzie’s recent hire of David Cambria as Global Director of Legal Operations, law firms might be ready to implement these systems. But first, lawyers need to accept that orderly systems for getting work done add financial value to lawyers and outcome value to clients. This means hiring experts in operational design, giving these experts the authority and resources to build better legal workflow systems, and following their advice about re-allocating lawyers’ efforts to higher-value activities.

2. Law firm pricing.  There are better ways to price law firm work than “lawyer hours x hourly rate.” Chief pricing officers are increasingly common in law firms now, supplemented by independent legal pricing consultants. Pricing experts, however, grow frustrated by lawyers’ reluctance to negotiate a price in advance. Lawyers don’t like being paid for results (which they can’t control) rather than efforts (which they can), which is why their compensation systems incentivize revenue over profitability. To overcome this problem, lawyers will have to trust their pricing experts that profitability beats revenue, that price certainty pleases clients and differentiates firms, and that the experts can build systems with objective data and subjective experience to deliver these positive outcomes. Let the people who understand pricing better than anyone else take charge of it.

3. Law firm sales. There is no better example of a task for which most lawyers lack the talent or skill, but that firms insist on keeping within lawyers’ authority, than the sales process. The cultural directive that “every partner must bring in business” effectively requires full-time professional lawyers to also be part-time amateur salespeople. Law firms claim that ethical rules against fee-sharing with “non-lawyers” stand in the way of a professional sales force. But I suspect the truth is that even though most lawyers don’t like selling, they do it anyway because they don’t want any “non-lawyers” interfering with the client relationship. Lawyers could save themselves (and their clients) much grief by hiring sales directors and working with them to develop focused value propositions for their clients, rather than playing at a role they didn’t go to law school to perform.

You’re probably seeing a common theme emerge here. To accomplish what I’m suggesting, lawyers would have to:

  • trust “non-lawyers” with expertise in areas beyond their own,
  • delegate to these people control over several facets of their firms,
  • follow recommendations by these people that will change their own habits and activities.

I know as well as you do how improbable that sounds. And believe me, I’m fully aware of the reflexive objections that firms’ leaders always raise. I can already hear managing partners and practice group chairs lining up to tell me, “Forget it. Our lawyers will never do any of those things. You’ll have to think of something else.”

Here’s what I need these leaders to understand: There is nothing else. If you’re looking for a solution to your law firm’s challenges that doesn’t involve fundamental behavioural shifts among your lawyers, then you might as well be looking for the end of the rainbow. The road to the transformation of your law firm into a modern, sustainable, client-first legal services business runs right through your lawyers’ comfort zone, right over their core belief that they know better than any “non-lawyer” how everything should be done. This belief is not defensible — simple reality disproves it every day — and your firm’s best hope for future success is for your lawyers to willingly divest themselves of it.

Because this all comes down to what lawyers believe — and if I’ve learned anything during my years on this earth, it’s that people believe what they want to believe. The facts have very little to do with it. If your lawyers don’t want to believe it’s time to loosen their grip on the reins of the firm, then they won’t believe it, and they won’t do anything about it. If they do want to believe it, then they will, and they’ll act.

And that brings us back to the Simpsons line that started this post. Lawyers are the cause of law firms’ problems — but they are, absolutely, the solution to those problems as well. Because they hold all the power in their firms, and only they can choose to share it. Law firms need their lawyers to do more of the things they’re best qualified to do (deliver client solutions, build client relationships, guide the development of law firms’ strategies and culture) and fewer of the things they’re not (almost everything else). If you haven’t already made the case to your lawyers that this is the best way forward, now is the time to do so.

But once you’ve done that, then you need to stand back and let the lawyers make the choice. Because it’s their choice, made in accordance with what they want to believe is true about the world. You can’t control what they decide. Like the rest of us, you can only watch and wait for their decision.

Hope vs. experience in California

What we know: The State Bar of California is creating a task force that will examine whether to modify ethics rules requiring that only lawyers may own equity in law firms. The Task Force’s commission followed the acceptance by the Bar’s Board of Trustees of a “Legal Market Landscape Report” commissioned by the Bar from Prof. William Henderson of the University of Indiana Maurer School of Law. That excellent report, extensively researched and detailed, argues that requiring lawyers to be the sole equity owners of law firms stunts the development of more productive, one-to-many legal services delivery and contributes to a system-wide legal access crisis.

What we don’t know: pretty much everything else.

The question everyone’s asking is: Has the game-changer arrived? Is this the American equivalent of the 2003 appointment of Sir David Clementi to examine the legal regulatory structure in England & Wales, the first pebble in the coming avalanche?

My early answer is this: The chances that California’s task force will result in fundamental reform to law firm ownership rules in the United States are higher than they’ve ever been. That doesn’t mean they’re particularly high.

Invariably, it’s not. But inevitably, at least once, it is.

It makes all kinds of sense to be cautious here. No legal regulator, in any jurisdiction, has ever voluntarily renounced the ban on non-lawyer ownership. In both Australia and England & Wales, it was direct government intervention that started the process — and in both cases, that intervention followed extensive criticism of legal regulators for failing to address client complaints about lawyers. Whenever the spectre arises of “non-lawyers” in legal services delivery, the legal profession mobilizes immediately and throws its considerable weight against the prospect. Toby Brown summed up the strong case for skepticism more than three years ago. It would be foolhardy to bet against the lawyers here.

But if you were ever going to make that bet, this would be the time to do it. There are several factors at play here that could justify the idea that maybe, possibly, this time is different.

  • Last fall, the California State Bar “deunified,” spinning off its trade association activities into a separate non-profit and keeping its regulatory and disciplinary functions. The Bar no longer suffers from conflicting mandates to both govern lawyers in the public interest and advocate for those lawyers’ interests; only the first directive survives. The regulator appears to be taking its “recent reforms and clear public protection mandate” seriously.
  • The Bar’s new Board of Trustees has 14 members, only seven of whom are lawyers. All are appointed by the state Supreme Court, legislature and governor, rather than elected by the legal profession. Speaking from a jurisdiction where the regulator’s governing board is directly elected by lawyers, following extensive campaigns in which candidates promise to “represent your interests,” I can tell you that this is no small thing.
  • The report was commissioned pursuant to Goal 4 of the Bar’s 2017-2022 Strategic Plan, “Support access to justice for all California residents and improvements to the state’s justice system,” objective (d): “…determine if any regulatory changes are needed to better support and/or regulate the expansion of access through the use of technology in a manner that balances the Bar’s dual goals of public protection and increased access to justice.” There’s a pretty clear theme here.
  • The task force’s mandate is not neutral or deferential towards the status quo. Rather, the task force is to conduct an analysis of “possible regulatory reforms,” a phrase that at least suggests the task force is supposed to come back with findings a little more robust than “everything’s fine the way it is.” Task forces tend to examine their commissioning documents closely and parse the language that was used to launch them.
  • This isn’t just any state: It’s California, home to 250,000 lawyers and an historic pioneer in public policy reform. More importantly, it’s home to many alternative legal services providers, online document providers, managed legal services companies, legal outsourcers, and legal technology startups. They’ll have pockets deep enough to support any kind of lobbying efforts they might wish to make, in conjunction with access-to-justice organizations and chambers of commerce.

Now, even taking all that into account, the challenges here are immense. The legal profession in California and nationwide will almost certainly throw everything it has against the possibility of regulatory reform emerging from this process. A lot will ride on the membership of the task force, which hasn’t been chosen yet: A chair or prominent member with strong views about the preservation of lawyer exclusivity in legal services could easily drive the task force where every previous reform effort has wound up. And even if California did decide to expand ownership of law firms beyond lawyers, that won’t happen before late 2020 at the earliest, and it would galvanize opposition by the organized bar elsewhere. It would be a significant step forward, but it wouldn’t be the tipping point by itself.

Sure the original’s better, but this version’s not bad.

But imagine for a moment what the legal market might look like if this reform actually happened. We’d find out if reform opponents were right all along, when they warned of  “non-lawyer” owners compromising lawyers’ judgment, abandoning legal ethics in favour of quick bucks, and exploiting vulnerable and under-informed clients with shoddy services and poor advice. The challenge for these opponents is that England & Wales has allowed “non-lawyers” to hold equity positions in firms for seven years, and there’s been little or no evidence of these outcomes unfolding there.

And on the list of potential benefits? Law firms offering equity positions to professionals and technicians from outside the law to restructure processes, build high-tech systems, and serve clients directly. Deeper cash reserves, enabled by injections of funding from outside investors, to finance technology and marketing upgrades. More non-lawyer equity holders moving in to replace retiring senior lawyers, thereby maintaining or growing the firm’s capital base. And ideally, the establishment of online legal services providers with the resources to offer the best of both NewLaw and OldLaw: low-cost, high-efficiency legal documents and services combined with high-quality legal assistance and advice from good lawyers. Not all of these benefits will be realized. But even one would be pretty great.

I’ve been in this business too long to harbour any illusions about the legal profession’s willingness to change. The smart money, the obvious prediction, says this task force will come to nothing, that the forces of intransigence will chalk up another win by making the right arrangements with the right power brokers, or simply by stonewalling until the reformers tire themselves out. The odds still favour that outcome, as they always do.

But here’s the thing: Eventually, change does arrive, often when you least expect it. Nothing stays the same forever, and believing that it will just makes it easier for nothing to change. I still root for the triumph of hope over experience, in spite of experience’s long winning streak. At some point down the road, power in the legal market will shift away from lawyers just enough to enable new expectations, assumptions, and rules for how legal services are created and delivered — just enough to start benefiting the people who need legal services more than the people who provide them.

There will be a moment when that shift begins. This might even be it.

Who really owns your law firm?

It’s not clear to me what many law firm partners think they’re doing in that role.

If you have a dog, you’ve probably seen it strain at the leash to chase after cars, with no idea what it would do if it actually caught one. If you have a cat, you’ve probably seen it tear up the stairs in a frenzy, only to stop halfway up as it completely forgets what drove it there. And if you’re in a law firm, you’ve probably seen lawyers strive through tremendous effort and at great personal cost to attain partnership, only to find themselves looking around and wondering what possessed them to do that.

The purported rewards of law firm partnership are well-known: A slice of the firm’s annual profits, a higher level of status with colleagues and clients, and a badge of honour to show (or flaunt) to family and friends. I’m sure many partners enjoy some or all of these benefits to one degree or another. But it’s always seemed to me that many lawyers become partners primarily through inertia — equity partnership was simply the last stop on the law firm career train. Lawyers are task-oriented people who just want to know what the next task is. Many of them became partners because that was the next task to do, the last achievement to unlock.

So, equity partner … what would you say you do here?

There’s much to be written about the impact of unintended partnership on the emotional well-being of lawyers. But I’m currently interested in its impact on the existential well-being of their firms. Many law firms are owned by lawyers who neither understand, nor desire, nor have any intention to fulfil the ownership role they’ve taken on.

Pretty much every law firm partnership includes equity partners who do not view themselves as the owners of a business. They view their equity share not as an opportunity (and responsibility) to guide a legal services business, but as (a) a profit stake, similar to a share in a publicly traded company, and (b) a safeguard against interference with their own autonomy. They are partners because the role bestows several rewards (money, power, prestige). They have little if any interest in the role’s corresponding responsibilities.

What are the responsibilities of law firm partnership? It depends on the specific firm in question, of course, but a good short list would include the responsibility to:

  • generate sufficient business to sustain more than your own practice
  • monitor and help improve the firm’s performance and profitability
  • promote the firm and its capacities to your clients and the market
  • accept and carry out some management and leadership duties
  • manage and mentor less experienced lawyers under your supervision
  • plan your own eventual departure and prepare others to succeed you

Taken as a whole, these can be expressed more simply: They are the responsibilities of ownership. Just as you must meet certain obligations for the comfortable house you live in and the stylish car you drive, you must likewise meet certain obligations for the profitable and prestigious law firm you partly own. Some law firm partners are interested in all the rights of ownership, but none of the corresponding responsibilities. The more of these partners your firm has, the more trouble it’s in.

I’m not really speaking here of partners who exercise their ownership powers in ways that their colleagues find self-serving, irritating, or even antagonistic. These partners aren’t a lot of fun to deal with, and they can do real damage — but at least they’re actively engaged with their ownership role. I’m speaking here of the large number of partners who are largely or entirely disengaged from the ownership role itself. They’re neither good actors nor bad actors; they’re not actors, period. They’re superannuated associates, absentee owners, empty seats at the partnership table.

When too many of the people who have the power of ownership in a law firm fail to exercise it, then the firm inevitably starts to drift, leaderless and increasingly listless. Truly engaged partners are forced to take on more duties, to make the decisions and carry out the obligations for the enterprise as a whole, leaving them worn down and resentful.

Consultants routinely advise law firms to rid themselves of “under-performing partners.” This is, of course, code for “partners who aren’t generating enough money.” I’d like to see that term redefined to mean “partners who aren’t living up to their ownership obligations, to their fellow owners and to the firm as a whole.”  In my ideal world, every partner who declines to take up his or her ownership responsibilities would be considered to have forfeited his or her legitimate claim to partnership.

So this might be a good time to look around your firm and ask yourself: Who are the real owners here? Who takes equity shareholding in this firm seriously — for better or for worse — and who simply sits around reaping the benefits of shareholding while ignoring its duties? My guess is that it won’t take you long to divide the sheep from the goats on this score. I sincerely hope that the engaged outnumber the disengaged, but I’ve seen enough law firms over the years to know that won’t always be the case.

With great power comes great responsi— no, wait, wrong movie.

At that stage, you might want to clearly restate for your partners the responsibilities of equity ownership within your firm and re-establish their equal importance to the rights of ownership. You could make this the theme of your next partnership retreat, to signal its importance, and perhaps to lay the groundwork for establishing the annual fulfillment of that list of ownership responsibilities as a sine qua non for continuing participation in the equity circle.

If that’s too much to ask in a firm of powerful veteran partners, and it might well be, then you should at least institute the expectation of “ownership responsibility fulfillment” for every new admission to partnership — in fact, make it part of their annual performance assessment. At too many firms, the only real expectation for new partners is the generation of business — the other responsibilities listed previously are often considered “nice to do” or “soft” activities. You need to harden those expectations, to make it clear that attaining partnership is not the last stop on the train. Maintaining partnership is also mandatory.

Partnership is not the promised land given to lawyers after (10) years in the desert. It’s not merely an achievement to be unlocked or a destination to be enjoyed — it’s an earned privilege with ongoing responsibilities, and nobody is permanently entitled to it. That might be a heretical statement at your law firm. But I think a lot of law firms are overdue for a little heresy at the moment.

Launching Today: Suffolk Law School’s Legal Innovation & Technology Online Certificate Program

Suffolk University Law School’s Legal Innovation & Technology Certificate Program officially launches today, and I’m immensely proud to be the architect of one of the first two courses to be rolled out.

The LIT Certificate Program provides participants with a thorough grounding and detailed understanding of the most important aspects of the new legal services market. There are six courses in the program, each delivered by an experienced legal practitioner or industry analyst who delivers ten full hours of information, instruction, and insight into the course’s subject matter.

In addition to the online lectures, there are also discussion board activities, knowledge checks, and outside reading and references. Each course is self-paced and lasts about ten weeks, with approximately two to five hours per week of work. You can enrol in any number of courses, including the full complement of six to obtain the LIT Certificate — individual courses cost about US$3,000, while the entire certification costs US$15,887.

The program is ideal for lawyers, of course, both in law firms and in-house. But it’s also geared towards legal knowledge professionals, chief executive officers, legal operations personnel, marketing and business development directors, and pretty much any other member of the increasingly diverse legal marketplace.

Your course instructor (not exactly as illustrated)

My own course is titled 21st Century Legal Services, and is actually based on an in-person class I created several years ago for Suffolk Law School upper-year students and that still forms part of the school’s real-world Legal Innovation and Technology Concentration. This online course is much more detailed — 600 minutes of instruction in total, so if you’ve ever wondered how much time you’d be willing to spend in my company, this would be an excellent way to find out.

Here’s the official description of my course: “You’ll learn critical market insights and strategic and tactical recommendations for operating a law firm or legal services business. The coursework will focus on the current upheaval in the market and how to compete successfully in the new legal services landscape to come.” I’ve broken down my ten hours of instruction into 20 30-minute lessons — here’s the course list:

  1. Course overview
  2. The new legal market
  3. The fall of the old firm
  4. The rise of the new firm
  5. The why of law firms
  6. Markets and clients
  7. Strategy and the client
  8. The competitive strategy
  9. The culture strategy
  10. The rise of operations
  11. The analytics game
  12. How much will it cost?
  13. Beyond rainmakers
  14. The new skill sets
  15. The millennial question
  16. The succession challenge
  17. Diversity matters
  18. Research and development
  19. How lawyers get paid
  20. Managing and leading change

Each of these lessons is accompanied by an in-depth background syllabus of several articles and blog posts that I’ve selected from among the sharpest and best-informed writers, reporters, and consultants in the legal market today. The only text I’ve (immodestly) assigned for the course is my own book, Law Is A Buyer’s Market: Building a Client-First Law Firm.

Also available today, concurrently with my course, is Legal Operations, by Lucy Bassli, former Assistant GC of Microsoft and now Chief Legal Strategist at LawGeex and Founder and Principal of InnoLegal Services PLLC. This terrific series of lessons instructs participants on the functions that make up the evolving roles in legal operations, specifically across corporate legal departments. I personally think Legal Ops has enormous potential to change the way in which corporate legal services are envisioned, structured, and delivered, and so I highly recommend Lucy’s course for your consideration.

Lucy and I are co-launching the Program with our two courses today. The other four lessons will be phased in over the next eight months — here’s what still to come:

September 2018

Process Improvement and Legal Project Management
Instructor: Catherine Alman MacDonagh

You will learn how to deliver legal services with greater efficiency and effectiveness. By learning process improvement and legal project management, you’ll gain competitive advantages in the marketplace.

Design Thinking for Legal Professionals
Instructor: Robert Taylor

Design thinking is a method of innovation that integrates the needs of users, the possibilities of technology, and the requirements for users’ success. This course will focus on the application of these skills for legal professionals from the full spectrum of work within the field.

January 2019

Legal Technology Toolkit
Instructor: Erika Rickard

Understanding the significance of technology to the delivery of legal services is vital. This course focuses on hands-on learning with tools that are changing the work of legal professionals.

The Business of Delivering Legal Services
Instructor: Mary E. Juetten

As new methods and tools impact society, there will be increasing changes to the structures of legal organizations. This course will focus on the impacts of tech on law firms and law departments.

If the LIT Certificate or my “21st-Century Legal Services” course sounds like it might be of interest to you or your organization, you can learn more from this informational webinar or by contacting the course’s director, Prof. Gabe Teninbaum. I’m a big fan of what Suffolk Law School is doing here to make expert instruction and guidance on legal innovation more widely available to busy professionals anywhere at any time.

And speaking personally, I’m pretty proud of the course I’ve developed for this program — feel free to drop me a line if you have any questions.

Thinking differently about legal AI

I think we need a new way to talk about artificial intelligence in the law.

I’m seeing a lot of frustration and cross-talk lately in the legal innovation community around what does and doesn’t constitute legal AI, and whether it will or won’t deliver any real value. The term “legal AI” isn’t helping much: it’s vague and wooly enough to mean almost anything, and its sci-fi connotations raise expectations beyond what any technology can realistically deliver at this point. I think we need to go back to basics and deconstruct what we’re trying to achieve with this technology, and why.

While I was thinking about this subject, the May 2018 edition of the ABA’s Law Practice Today arrived in my inbox, featuring a remarkably on-point article by Michael Mills of Neota Logic. Michael answers the question “What is AI?” with this retort: “First, AI isn’t really ‘artificial’—it’s all created by humans through very, very hard work — and it isn’t really ‘intelligent’ either — the software doesn’t know what it’s doing or why. Second, AI is not a ‘what.’ We can’t point to anything and say, ‘Yup, that’s an AI, right over there by the door.’” (Advance thanks to Michael, who’s provided thoughts on this post in draft form.)

So, what are we really talking about when we talk about legal AI? “A large and growing collection of mathematical methods embodied in software for doing narrowly defined but very useful [legal] tasks,” is Michael’s apt description. This suggests to me that we ought to look more closely at the tasks in question, in order to find out why we’re applying these methods to accomplish them. Michael classifies these tasks into five categories:

  • Electronic Discovery
  • Legal Research
  • Analytics & Prediction
  • Expertise Automation
  • Contract Analysis

Why use “legal AI” to carry out these tasks? Michael suggests that these applications of AI can enable lawyers to:

  • Serve more clients more effectively at lower cost.
  • Create new revenue streams not dependent on hours worked.
  • Focus time and expertise on work that requires the uniquely human and professional skills of empathy, judgment, creativity, and advocacy.
  • Increase access to justice by meeting the legal needs of the poor and middle class.

This all seems accurate to me. I’d like to take the inquiry a step farther and ask: What are the benefits to clients of applying these methods to these tasks?  I wrote last year that lawyers should evaluate any potential AI investment in terms of whether and to what extent clients will benefit. In that spirit, I’d like to suggest a client-centred framework for viewing legal AI.

It seems to me that the five sets of tasks Michael has enumerated can themselves be broken down into two general categories.

1. Volume and Costs

One category contains all those tasks that “legal AI” can accomplish in less time and at lower cost than human lawyers can. Put differently, these are the tasks that human lawyers could carry out — indeed, in the not-too-distant past, routinely carried out — but that would exact an enormous cost if they were left to humans today. You might think of these as “volume” tasks: If you put a million lawyers to work on these tasks, and gave them plenty of time, they could do a fine job.

Tell the GC the document review lawyers have arrived.

  • Electronic discovery is the ideal example here. Theoretically, sure, lawyers alone could identify all the relevant documents hidden in terabytes of e-data, and the results they achieved likely would not differ substantially from what e-discovery software could accomplish. But of course, the costs of this approach are mind-boggling: no judge would authorize it and no client would pay for it if there were any other way to carry it out.
  • Or take contract analysis. Multinational A buys Multinational B, and the resulting Himalayan pile of contracts needs to be identified, reviewed, analyzed, and rationalized for various purposes. Give me a million lawyers with a million hours each, and I’ll render just as good a result as a cognitive-reasoning software program — so long as the merger can wait 40 years and the value of the new corporate behemoth can somehow afford the lawyers’ fees.
  • For the most part, I think you could also add legal research to this category. A million lawyers, each armed with a million-hour quota, could review every case in existence and gradually work their way down to identify the most salient decisions for a judge’s consideration. Mathematical-model methods can do the job at a sliver of a fraction of the cost, and while that’s not the entirety of legal research by any means, this aspect of it fits the bill here.

These three types of legal tasks are susceptible to the application of legal AI, not because the AI produces better results, necessarily — though if you want to argue that machines are less error-prone and inconsistent than overworked lawyers with aching eyes and mental fatigue, go right ahead — but because it produces substantially similar results at an enormously lower cost of effort, money and time. That’s what matters to clients. So the client-centred rationale for using these methods is “Reduce costs.”

2. Expertise and Scarcity

But then there’s the second category of tasks, and this one is much more interesting. This category contains all those tasks that “legal AI” can accomplish by imitating or replicating lawyers’ logical, analytical, and advisory skills. If the first category of tasks was about “volume,” this one is about “expertise,” and the value propositions here are very different.

Take the group of tasks that Michael refers to as “expertise automation.” This is a fascinating area in which Michael’s own company, Neota Logic, has been a pioneer: he describes it as “the automation of substantive legal guidance and processes … [that] combines expert systems and other artificial intelligence techniques, including on-demand machine learning, to deliver answers to legal, compliance, and policy questions.”

Note that the tasks given to expert systems are not “volume tasks.” You could assign a million lawyers to answer a client’s question, but you’re not necessarily going to get the right answer, because maybe none of these lawyers has the expertise required to give the right answer. What you need is an expert lawyer who knows this area of law and will ask clients the right questions, tap into the appropriate set of facts and experiences, follow the correct reasoning path, and render an accurate response.

Here’s the client’s problem: this kind of expertise is scarce. Only a relative handful of lawyers possess the knowledge, experience, and skill to answer specific kinds of client questions, and the narrower the field of expertise, the smaller the number. The scarcity of this resource raises its price, restricts its accessibility, and renders it prone to charging by the hour.

AI in the (Jude) Law.

But suppose the client could distill this expertise into a complex database of probabilistic reasoning and computational decision trees that could provide substantially the same answers that the lawyer would give. This program would be invaluable to the client because it would increase the supply — and reduce the scarcity — of legal expertise.

This is, in fact, exactly the situation that Profs. Richard and Daniel Susskind describe in their recent book The Future of the Professions. In the Susskinds’ view, the historical influence and dominance of the professions is substantially grounded in the exclusivity that professionals maintain over access to expert knowledge and the ability to dispense it. Richard has stated that the book really seeks to answer the question: “How do we produce and distribute practical expertise as a society?” This is not a new topic: as far back as 2000, he defined an expert system as “the use of computer technology to make scarce … expertise and knowledge more widely available and more easily accessible.”

We might even be standing on that threshold today. Here’s what Ben Hancock of The Recorder reported from the LegalWeek 2018 legal technology conference earlier this year:

Brian Kuhn, the global leader and co-founder of IBM Watson Legal, envisions — and it sounds like IBM is implementing — the creation of “cartridges” of specialized legal information that can be deployed for various legal tasks. That’s a mouthful, I know.

But imagine this: A firm that specializes in antitrust law “trains” an AI algorithm to interpret documents relevant to that practice area. Then, the firm sells that piece of trained software, allowing a firm weak in antitrust to gain capacity (and removing the need, perhaps, to bring on a bunch of antitrust partners).

Now IBM, it’s true, perpetually seems to be “a few years away” from releasing a game-changing legal technology breakthrough. But an “expertise cartridge” is exactly what we’re talking about here: distilled legal know-how, transferrable from user to user, distributed widely — the “democratization” of legal expertise, if you want to get political about it. And the primary buyer for a product like that wouldn’t be “a law firm weak in antitrust,” but the GC of a large corporation, who would be very interested in a 24/7, mobile, and scalable source of antitrust expertise.

The same analysis would apply to our fifth category of legal AI tasks, “analytics and prediction.” I’m being persuaded to the view, recently enunciated by Sarah Sutherland and Sam Witherspoon among others, that we’re not going to achieve effective litigation prediction from the distillation of court decisions alone — the data points are too few and insufficiently robust. But in broad terms, “outcome prediction” is really the archetypal, fundamental lawyer functionality: To answer the recursive client question, “What’s going to happen in my situation?” Again, from the client perspective, this isn’t a problem of volume, but of the scarcity of resources available to answer a legal question.

Now, let’s pull back for a moment and write ourselves a reality check. We don’t have the means today to build programs that can render detailed legal analyses of complex problems or advise with statistical confidence where clients’ current legal circumstances are likely to lead them. Nor are we remotely on track to get there. But if you want to know what the Holy Grail of Automated Legal Services looks like, that’s it. And considering the potential payoff for anyone who finds it, you know that a lot of smart people are trying to find the right combination of jurisprudential data, trial lawyer experience, arbitration outcomes, negotiation principles, tribunal decisions, and human game theory that will unlock this prize.

A New Framework

So, let’s return to the goal I set for myself at the start of this post: Figuring out a better framework for talking about AI in legal services.  I would suggest we classify legal AI offerings according to the type of market problem they aim to solve. I’ve proposed two categories of these problems:

  1. The volume costs of lawyer effort
  2. The scarcity costs of lawyer expertise

There are probably others, or you could break these categories down into finer classifications, but it should do for a start. Here’s a basic matrix of these problems, their proposed AI solutions, and the likely impact of those solutions on lawyers and law firms.

Finally, because everyone loves fighting over nomenclature, here’s a potential naming protocol.

  1. I’d suggest the term “Volume AI” for those applications that accomplish high-volume legal tasks far more quickly and efficiently than human lawyers do, to generate great cost and time savings for clients.
  2. I’d suggest the term “Expertise AI” for those applications that make scarce legal expertise widely available in computerized form, to generate greater accessibility for clients to the legal answers they need.

“Volume AI” would refer to any technology that reduces the time and effort of lawyers; “Expertise AI” would refer to any technology that increases the accessibility to clients of valuable but scarce legal expertise. (Maybe we can eventually do away with “AI” altogether in this area, but let’s start small.)

That’s my proposed framework for thinking and talking a little differently about legal AI. The comments section is open for your thoughts.