The end of the beginning

I’d like you to consider the following list. It’s a compilation of several prominent alternative legal services providers (ALSPs) and the year they were founded.

  • 1999: Integreon
  • 2000: Axiom
  • 2001: Relativity
  • 2002: Consilio
  • 2003: Exigent
  • 2004: Pangea3
  • 2005: Novus Law
  • 2006: UnitedLex
  • 2007: Lawyers On Demand
  • 2010: Neota Logic
  • 2011: Elevate
  • 2011: Radiant Law
  • 2012: Ravel Law
  • 2014: Premonition
  • 2014: ROSS Intel
  • 2015: Diligen
  • 2015: Kira Systems

You’ll probably notice a couple of things here. One is that there are two distinct “waves” of foundings, one from 1999 to 2007, and then another from 2010 to 2015. The gap between these two waves is likely due to the financial crisis and Great Recession of 2007-08 — as is, I would suggest, the second wave itself, which rapidly developed in response to the widespread demand for better value from corporate clients following the recession. This list of ALSPs is far from comprehensive, of course, but even as a blurry snapshot of new legal services providers, I think it’s interesting.

The second thing worth noticing, from my perspective anyway, is that all these companies are young. None of them is even old enough to legally drink in the United States. (Y’all need to come north across the border.) Compare that list with this one:

  • 1998: Google
  • 2002: LinkedIn
  • 2004: Facebook
  • 2005: YouTube
  • 2006: Twitter
  • 2007: iPhone
  • 2010: Instagram
  • 2010: iPad
  • 2011: Snapchat

UnitedLex is the same age as Twitter. Neota Logic is as old as Instagram. Half the ALSPs on that first list are younger than the iPad. This entire segment of the legal market flat-out did not exist 20 years ago.

Yet today, according to the Thomson Reuters 2017 Alternative Legal Service Study, alternative legal services provision (“non-law-firms,” basically) is an $8.4 billion industry worldwide — and that figure doesn’t include companies that make legal technology to carry out legal tasks, which is probably at least another couple billion and change. So we’re talking about a sector that has generated many tens of billions of dollars over the last couple of decades, at least 1% of global legal spend annually, from a standing start the year Titanic was released.

I think that’s pretty impressive. And like many people, I’ve not seen much reason why this sector couldn’t continue to grow just as fast  in the years to come. Yet there’s at least some data out there to suggest that that growth has stalled recently.

In an important post last month, Ron Friedmann noticed an apparent disconnect between the conventional legal industry wisdom about ALSPs and the actual data about client spend. The conventional wisdom is that ALSPs have cracked the code of the legal market: they’ve seen how the traditional law firm’s archaic approach to producing and delivering legal work creates gaping market inefficiencies begging to be exploited, and they’ve figured out how process improvement, technological investment, labour arbitrage, and system overhauls can enable that exploitation. There are 8.4 billion reasons to think this is a pretty persuasive case.

And yet, Ron points out that the Altman Weil 2017 Chief Legal Officer Survey asked respondents to estimate the percentage of their total legal spend allocations according to type of provider: internal, outside law firm, and non-firm vendor. Here are the results:

Whoopsie.

“Spending on non-firm vendors, which includes alternative legal service providers, remains in the mid single digits with a shrinking share since 2014,” he wrote. “Many reports and commentators says ALSP is growing absolutely and taking share from law firms. Yet, the only time series data I have seen that asks about actual spending (not intent to spend) is [in this chart].”

Ron notes that this is hardly a definitive disproval of the theory of the Unstoppable Alternative Provider. We don’t have as much spending data as we’d like, to help us establish a case either way. But he also notes that ALSPs received the lowest rating from Altman Weil respondents on the question of which type of provider possesses the best “knowledge and understanding of the challenges of leading a law department.” So there’s at least some reason to ask whether ALSPs have maintained and can maintain their initial launch angle into the legal market. And if ALSPs’ growth in market share has in fact slowed or even stalled out altogether, we should try to figure out why.

Here’s one possibility. It might be that we’re nearing the end of the legal services disintermediation process. It might be that the supply side of the legal market has now broken, irreparably, in two.

The limits of disintermediation

The steady rise of the ALSP since the year 2000 — the legal process outsourcer, the flex-lawyer platform, the managed legal services company, and advanced legal software — has enabled the movement of millions of hours’ worth of routine, straightforward legal work off lawyers’ desks and out of law firms. That work has migrated into both ALSPs and law departments themselves, where it is performed faster, less expensively, and often to a higher degree of quality and reliability. The cost savings cannot be underestimated: Ray Bayley, founder of Novus Law, famously observed that for every dollar his company makes, law firms lose four. It’s not just that this routine work left law firms — it’s that it was streamlined, structured, and shrunken on the way to its new home.

This result is a testament to the fact that law firms were carrying out mind-boggling amounts of legal work inefficiently, haphazardly, and wastefully. It was work that didn’t really belong in law firms anymore and that is no longer part of many firms’ inventory (as unemployed would-be associates and poorly leveraged partners can both ruefully attest).  Twenty years after it first emerged, the ALSP sector no longer has to prove itself. Disintermediation of routine work from law firms has been a success.

But how much longer can it continue? How much more work of this type is there to disintermediate? Probably there’s still a decent amount — many corporate clients have yet to take advantage of what ALSPs have to offer. They haven’t moved far enough along the Rogers Diffusion Curve, or they haven’t accepted the fact that unless they ask for better options, they’re not going to get them. It’s possible that the lowest-hanging fruit has now been picked, and that clients who want better deals on their legal services spend are going to have to stretch themselves to reach it. I do think that will happen, in fits and starts, over the next several years.

The consequences of disintermediation

But what about all the legal work that has not been disintermediated, that remains behind in law firms? Because some work will remain — I don’t know anyone who really believes that everything law firms do can or should be bled off to ALSPs or “robot lawyers” or whatever. Some quantum of legal work requires skilled, trained, sophisticated lawyers to do it properly. Those companies in the ALSP sector are helping us define the quantum — whatever they can siphon off isn’t part of it — but they’re probably not going to be angling to get it. Law firms will be the default provider — but there’s good reason to think that they won’t hold that position for long.

Because the foundation of the traditional law firm is exactly all the routine, repeatable, hours-burning work that ALSPs are taking away. Law firms aren’t set up to perform only high-value, highly sophisticated work. Law firms are dependent on leveraging lower-cost labour — not just associates anymore, but also non-equity partners and even some junior equity partners — to carry out lower-value work. That’s the whole point of leverage. That’s where the partners’ profit is, and always has been. The sale of hours is the lifeblood of law firms — but the kind of work that could sustain 2,000 hours of lawyer effort every year is leaving the building. ALSPs aren’t just siphoning basic work from law firms; they’re siphoning off the lower levels of the law firm pyramid.

The problem is not that law firms are losing all the work they were overqualified to perform. The problem is that law firms are keeping all the work that requires highly skilled lawyers working in close collaboration using sophisticated tools on a multi-disciplinary platform to generate high-value outcomes for a previously agreed price. That, ironically, is the type of work that many law firms always say they aspired to do. But that sort of platform is not what most law firms are. And it is not what most law firms can easily transition to become.

John Lithgow > Gary Oldman. Don’t @ me.

Two legal supply sectors

It looks to me, then, like the supply side of the legal market has broken into two segments.

1. Routine Legal Work. This segment is occupied by alternative legal services providers using technology and processes to disintermediate basic legal tasks from complex, expensive law firms — in many cases, the kind of work lawyers really shouldn’t be doing. When the flow of that work from law firms to ALSPs finally dries up, we’ll have reached the effective end of disintermediation. The ALSP sector will have matured, consolidation will set in, and sector giants will eventually emerge.  That will be an amazing event, an historic correction to the legal services market and a major victory for the legal consumer.

2. Complex Legal Work. This segment is devoted to more complex, higher-value work — tasks that need good lawyers to perform — but it’s occupied by traditional law firms still reeling from the splitting of the supply side of the market. They are finding themselves increasingly bereft of their inventory and unsure of their future. How will they cope? And if they can’t cope, who will perform all the important and sophisticated legal services that require a lawyer’s attention, but that can no longer be effectively served from the traditional law firm?

Ten years after the financial crisis, we may have reached “the end of the beginning” of legal market change.  ALSPs, young and vibrant and exciting, are solidifying their grip on the routine legal work market. Law firms, older and disoriented and vulnerable, are eager to obtain the high-value work, but are struggling to figure out how they can perform it sustainably and profitably with their existing structures and systems. More than a few ALSPs, it should readily be admitted, will fail and fall apart in the churning waters of their new market segment. But more than a few law firms, equally, will fail and fall apart because they’re just not built to deliver what their newly demanding market wants.

And if these law firms do fail, who — or what — will replace them? New and better law firms, designed for the new market to be the kinds of platforms described above? I sure hope so — that’s what I’ve spent the last several years trying to encourage, at any rate. But there’s no guarantee that a new and better platform will arise to sustain lawyers in this segment of the market. And I don’t think anyone knows what will happen if they don’t.

We’re here for a good time, not a long time

In the spirit of Casey Flaherty’s recent excellent post “Me Being Wrong,” I’m starting off the year with an admission of (at least) one thing about law firms I’ve totally swung and missed on. In some article or other within the last year or two, I wrote that “law firms are supposed to be multi-generational entities.” I’m now reluctantly set to admit that they are not.

I’ve had growing doubts about my multi-generational thesis for awhile, but the decisive blow against it was struck by this post at Adam Smith Esq. wherein Bruce MacEwen and Janet Stanton tick off all the reasons why the average law firm apparently stays in business only 40 years:

  • The desire of the firm’s leaders to avoid awkward “succession” conversations with longstanding friends and colleagues,
  • The immovability of senior rainmakers who will not be managed and will certainly not be “transitioned” anywhere they don’t want to go,
  • The confluence, in smaller law firms, of the rainmaker, founder, and senior management roles in the same people, and most of all,
  • The sorry fact that many senior lawyers really don’t care what happens to the firm the day after they retire.

What all these factors share in common is that the law firm hasn’t managed to become something more than the sum of its parts. As Dorothy Parker once said of Oakland, there’s no there there. The concept of the firm as a thriving legal services enterprise independent of the lawyers who supply its services never really caught on, at least not with the most important lawyers therein. 

You are never going to sit in that chair, Wesley.

A few years ago, I was contacted by some people at a boutique firm who were facing an existential problem: the name founders were all coming up on retirement, but were showing little interest in devolving authority, transitioning clients, or planning for the future. It was probably dawning on everyone else in the firm — junior partners, senior associates, staff — that the reason the firm existed was to be the commercial vehicle for the name partners’ legal careers, and that when those careers ended, the vehicle would have served its purpose.

I once wrote that many law firms seem to be run these days as if they intended to close their doors in five years’ time. I was half-joking at the time, but I now think there was more truth in it than I realized. Five years is probably the anticipated remaining career length of a typical law firm’s most powerful partners. If your law firm’s engine seems to be pushed into overdrive, such that it’s going to be immensely profitable in the short term but is imperilling itself in the long term, maybe there’s a reason for that.

Bruce and Janet are sanguine about whether one-generation firms are necessarily a bad thing, and they make some good points. I still think it’s kind of a sad turn of events, though, because although the firm’s founders and rainmakers might be perfectly happy to drain the contents of the firm and recycle the empty afterwards, most of the other people in the firm, especially associates and staff, put their backs and their hearts into the enterprise and believed that there was, in fact, a “there” there. Most will probably find employment elsewhere, that’s true; but they’ll also have lost something more personal that they’ll find harder to replace.

There’s no shortage of helpful information about law firm succession planning and partner exit strategies out there, and I plan to contribute something along those lines here soon enough. But I think there’s a critically important preliminary step that you need to take before your firm commits to any of these courses of action.

I think your firm’s leaders need to sit down and have a private and very honest discussion about whether your firm is one-generational or multi-generational. It doesn’t matter that much, from my perspective, which answer you come up with. What matters is that you arrive at a clear-eyed agreement about what the firm’s leaders really, genuinely want and expect from their firm.

Beware of being too aspirational, of saying, “Yes, we’re building for the future, we want to leave a legacy, etc,” if you don’t really mean it. Because if what the firm’s powerhouse people really want is to mainline cash from this machine for the next few years and then close up shop, then it’s wasteful and counterproductive to spend time, money, and effort on succession plans and generational handovers that will never take place. Everyone will be left poorer and more embittered. You’ve got to be honest with yourselves about what sort of firm you have here.  

But if you decide, during these conversations, that yes, you truly do want the firm to last beyond the current generation of rainmakers, then everyone needs to be clear about the hard choices and time-consuming mechanics that choice requires. This might, in fact, be the best way to go about the whole “succession” issue: start by establishing beyond any doubt whether this is a firm that wishes to have succession at all. 

Challenge the default assumption that your law firm will continue on in perpetuity. That’s a hard conversation to have, it’s true; but holding it will make every subsequent conversation about your firm’s future easier.

Break the law firm business model

The ABA’s Center for Innovation, where I serve as an advisory board member, asked me to submit a post for its excellent new blog. I was happy to send them this takedown of the traditional law firm, which I’ve also posted here below.

“Innovation destroys hours.”

Those three words, written by Neota Logic founder Michael Mills in a 2014 blog post, summarize the fundamental challenge that every law firm faces today. They reflect two market realities that are inherently incompatible with each other.

1. Virtually every recent innovation in the legal services market — from automation to process improvement to multi-sourcing — has operated to reduce the amount of time and effort required to produce and deliver legal services.

2. Virtually every law firm in the legal market prices its work, bills its clients, compensates its lawyers, and rewards its shareholders on the basis of the amount of time and effort required to produce and deliver legal services.

This fact has to constitute the starting point for all our inquiries into “why law firms don’t innovate.” The hours billed by a traditional law firm’s lawyers represent the entire inventory of the firm — it’s what the firm sells and the sole means by which the firm makes money. When a law firm engages in any of the most common types of innovation, it eliminates hours, thereby reducing its inventory and lowering its lawyers’ revenue. It’s no wonder innovation is anathema within most law firms: it’s antithetical to the law firm’s foundational business premise. You might as well ask a ship to innovate by drilling holes in its hull.

Don’t make the mistake, therefore, of blaming lawyers for the lack of law firm innovation. Sure, lawyers are change-resistant and conservative and all the rest — but so are most people, to a greater or lesser extent. Since almost any worthwhile innovation in a law firm will destroy hours and therefore reduce lawyers’ stock in trade, lawyers will understandably fight those innovations. It’s an entirely rational response.

The true barrier to law firm innovation is the firm’s ironclad insistence on measuring value — both external to the client and internal within the firm — on the basis of lawyers’ time and effort.

Law firms maintain a direct, causal connection between the time and effort lawyers expend to deliver a service and:

(a) the money clients pay to receive that service, and
(b) the money lawyers receive as compensation for their services.

But there is no fundamental economic reason why either of these should be the case. These aspects of your business can and should be largely independent of each other.

(a) Clients need not be charged on the basis of lawyers’ time and effort. They can be charged on the basis of successfully accomplishing a task within previously agreed parameters for a previously agreed price (with both parameters and price established according to competitive market realities). Indeed, clients have been telling firms this for the last ten years: they don’t care how much time and effort was required to generate their legal services. All they care about is the result they received and the experience they enjoyed (or endured) to receive it.

(b) Lawyers need not be compensated on the basis of the time and effort they expended to deliver a service. They can (also) be compensated for other means of contributing value to the firm, including clients landed, business generated, relationships maintained, solutions identified, teams managed, projects led, efficiencies found, juniors mentored, and a host of other criteria. Should we really be surprised that law firms that incentivize maximum lawyer time and effort are filled with overworked male lawyers disproportionately prone to depression and substance abuse?

Law firms have trouble appreciating that their costs of production and their revenue from clients aren’t really supposed to be causally connected.

If you want to successfully introduce innovations into your law firm, therefore, you first need to recognize that these innovations pose an existential threat to the way the law firm does business. So your real challenge — the challenge every law firm faces, whether it wants to innovate or not — is to change the way the law firm does business. Break the causal relationship between the amount of time and effort required to render a client service and (a) the price clients are charged for those services, and (b) the rewards provided to lawyers who helped deliver those services.

That’s not going to be easy, obviously. In fact, it might seem like I’m just substituting one insurmountable challenge for another. But here’s the difference: You have zero chance of stopping innovation from destroying lawyer hours. But you have a non-zero chance of changing the way law firms charge their clients and compensate their lawyers.

You’re going to have to change your law firm’s business model eventually. Eventually might as well start today.

The best of Dispatch 2017

As I mentioned in a post earlier this fall, I publish a free e-newsletter called “Law21 Dispatch” every two months to about 2,800 readers. The content is exclusive to subscribers, but at the suggestion of some readers, I’ve decided to make it annual end-of-year practice to publish the best content from the previous year’s worth of editions. Subscribers will still benefit from a “head start” on the content of anywhere from several weeks to a full year.

Accordingly, here are (to my mind, anyway) the six best entries from “Law21 Dispatch” in 2017.

1. The Conversation 

There’s a conversation that needs to take place within your law firm. Probably there are several, but we’ll start with one for the moment. You, as a leader in your firm, need to decide three things about this conversation. 

First, you have to decide who needs to be approached and addressed. This person is almost certainly a partner, one who has delivered great value to the firm in the past and maybe even still does. But this person is also the cause of a serious problem.

  • Possibly he’s behaving selfishly or maliciously towards colleagues and staff, whether he realizes it or not.
  • Possibly she’s gripped the reins of a client relationship too tightly for too long, and her juniors are getting ready to quit the firm.
  • Possibly he’s past the point when he should have reduced his day-to-day role in the firm or even retired altogether.

I think you know who this person is already. You might have numerous candidates, unfortunately.

Secondly, you need to decide who’s going to start the conversation. This person is also likely a partner, but could also be a senior staff member. This person speaks with authority, both formal (by virtue of his or her role) and informal (by virtue of his or her personality and past conduct). This person has to do something very difficult: broach the issue outlined above. I think you know who this person is, too. Probably, it’s you.

That’s daunting, which is why this conversation has been put off for so long. But I can tell you this: Nothing that occurs in the ensuing conversation will be as difficult as actually starting it. The conversation itself might actually be a great deal easier than you fear. Quite possibly, the person you need to speak with knows about the issue as well as you, but is too fearful or proud to broach the subject. Maybe they’re just waiting for someone they trust to raise it.

The third and final thing you need to decide is when to have this conversation. The answer to this question, at least, is easy. It’s today.

2. Use Multi-Generational Teams to Build Engagement

Law firm leaders seem to share a widespread challenge with their millennial lawyers. Firms are trying hard to engage their associates and junior partners in the larger affairs of the firm, to connect and coax them into leadership and business development roles, but with only limited success. 

Some of this is rooted in real differences in personalities and priorities across generations. Many (though not all) millennial lawyers dislike making commitments that will reduce their leverage and leave them vulnerable to their employers. Self-confident and comfortable with mobility, they want to keep their options open and maintain fallback positions, so they tend to resist traditional pathways to power and to keep the firm at arm’s length. That makes them different from most senior partners; it does not make them wrong.

One way around this impasse is to cross your firm’s generational streams. I spoke with one managing partner recently who built multi-generational teams for business development, which have come to also provide informal mentoring and communication opportunities. Both younger and older eyes are opened by working in proximity with another generation that no longer seems so weird and unfathomable.

I think firms could go so far as to create “families” of lawyers born in different decades and assign them a strategic business issue to meet and hash out over coffee once a month. It’s a good way to introduce younger lawyers to enterprise-level concerns and opportunities; but smart firms will genuinely solicit their millennials’ views and build them into the firm’s plans. I’d also seek to build such teams between firms and clients, asking them to scope out an emerging industry issue and jointly advise leaders on both sides how to proceed.

Get your people talking and working across their generational divides. Boomers and millennials actually share a lot in common, especially an interest in serving clients. Start the process there and see where it takes you.

3. Reduce Your Law Firm’s Sales Vulnerability

Law firms have a salesforce problem.

A law firm’s salespeople, as you know, are its lawyers. This is problematic for a number of reasons, including the fact that most lawyers aren’t really cut out for sales and either resist the role or struggle with it. In turn, this makes those few lawyers who are good at sales disproportionately valuable to the firm, thereby creating an elite upper echelon within the partnership that skews compensation and damages collegiality. But that’s not even the biggest issue.

The real problem with the law firm sales process is that the customer relationships developed within this system are individualistic; that is, they belong to the lawyer rather than to the firm. If the selling lawyer leaves the firm, the expectation is that many if not most of the relationships will depart with him or her. The firm is vulnerable, strategically speaking, to its best salespeople, and both the firm and the lawyers know it.

Here’s how you start to solve this problem: Create revenue channels that are not dependent on individual lawyers, but on the firm as an enterprise. Technology-based legal services are the easiest way to achieve this, because they can be built and maintained by professional staff and can survive the loss of both staffers and lawyers. High-tech systems won’t demand a larger piece of the profits or threaten to cross the street to a rival firm. Here’s a list of law firms that have followed this route, compiled by Ron Friedmann.

But you don’t need to spend serious coin on advanced tech to achieve this goal. For example, invest in your firm’s library staff and knowledge resources to launch a subscription-based service by which your clients can engage your librarians to answer questions or undertake research. Or create and email a (paid) weekly industry intelligence bulletin tailored to each of your major markets. Allow your firm’s knowledge assets to face outward as well as inward, to provide services to clients as well as to lawyers.

Your firm should be selling entrepreneurially as well as individually. Start finding ways to diversify your sales team and reduce your sales vulnerability.

4. On What Criteria Do Your Clients Rate You?

Lawyers and law firms have grown accustomed to being assessed and ranked. But the assessment methods to which they’re accustomed have been pretty friendly up until now. Third-party rating agencies, “best lawyer” lists, industry awards — all these entities profit from lawyers’ tendency to preen and law firms’ desire to burnish their profiles. If you need validation as a lawyer, there’s no shortage of services to provide it to you, at a price.

But the new assessment systems now flourishing in the legal market are not friendly to law firms — at best, they’re coldly neutral. Corporate clients are starting to develop their own law firm evaluation systems, using data that they’ve collected (including through the fascinating AdvanceLaw GC Experiment) and criteria that match their own priorities.

For a sample, read about the comprehensive assessment and feedback system Google has rolled out to its patent law firms — of which there are now notably fewer than when the process began. Google’s key metrics are based on the “management triangle” — quantity, cost, and quality — each of which is defined according to the company’s interests, not law firms’. Expect to see a lot more of this in the years to come.

Here’s an unassailable fact: your clients evaluate your firm every day, formally or informally, and the combined impact of those evaluations dictates whether they will keep hiring you. Any firm that doesn’t know its primary clients’ law firm assessment criteria is courting danger. If your firm is in that category, rectify that immediately. Discover the terms upon which your clients evaluate your firm — and if, somehow, they haven’t yet developed those terms, offer to help them do so.

5. Flex Lawyers vs. Fixed Lawyers

The Big 4 accounting firms are moving on the legal market in interesting ways. Take PriceWaterhouseCoopers, which not only has opened a standalone law firm in Washington, offering non-US law advice to American clients, but also has just launched an on-demand flexible lawyering service for clients in the UK. This latter move is worth a closer look.

Some law firms have already blazed the flex trail, of course. Berwin Leighton Paisner (Lawyers On Demand), Allen & Overy (Peerpoint), Eversheds Sutherland (Agile), and Fenwick & West (Flex) are among the firms that have created flex-time lawyer platforms. There are also several standalone flex-lawyer businesses, including Axiom, ElevateConduit, and Caravel. And “purpose-built” or “virtual” firms like Taylor English and FisherBroyles are active in this space as well. PwC’s entry marks the newest phase in this development.

What we’re experiencing here is the start of a potentially major shift in lawyers’ usage patterns. Many associates, mostly but not exclusively millennials, have no interest in equity partnership and want more control over their work lives (and more than a few partners feel the same way). At the same time, many law firms recognize that the decline in demand for billable work is probably permanent, and that they can no longer sustain large rosters of full-time lawyers to be leveraged. These two trends are pulling the legal market in the same direction.

I think we’re seeing the emergence of two complementary models for accessing lawyers’ services: the “flex-lawyer” option and the “fixed-lawyer” option. The former is suitable for specialized, short-term, or project retainers; the latter works well for major, long-term, relationship-based retainers. Clients like having several options available for their diverse legal needs, which suggests that both these models should thrive.

So the question is, which is better for you? Some firms will reject the flex model altogether and remain steadfastly “fixed,” while others will shift to an entirely project-based workforce. Most firms, though, will wind up somewhere in the middle, maintaining a core of fixed lawyers complemented by a taxi squad of flex talent offsite. Ask your partners where they think your firm should wind up on this spectrum, and why they think so. That should trigger some very interesting conversations.

6. Bringing R&D to Your Law Firm

R&D in law firms is now a reality. Akerman, Ashurst, Dentons, and Kennedys are among at least 20 major law firms that have either developed an internal research and development capacity or have partnered with an outside provider for their R&D needs. But you shouldn’t consider R&D to be only for huge or deep-pocketed firms. Any firm can conduct R&D, and most should. 

Law firm R&D is really about forecasting how the firm will be making money three or five or ten years down the road, on the assumption (more relevant than ever) that the legal market’s needs and circumstances will change significantly over that time. It’s about developing new services for existing clients, discovering nascent markets for tomorrow’s firm to enter, and identifying new technologies that will change the way legal services are created and delivered.

Your firm, no matter its size or focus, would benefit from that. But how do you persuade partners, infamously reluctant to divert or dilute their profits, to support this idea?

Equity partners, more so than corporate shareholders, often think in terms of risks rather than opportunities. So consider presenting an R&D initiative as a type of “hedge” against market changes, a way to mitigate the impact of an unexpected turn of events. If a key client disappeared, how would we replace it? If a new market emerged, how could we ensure our rivals don’t break into it first? If a new technology could change everything, how do we make sure we’re the changers, not the changed?

Keep the practicalities of an R&D initiative simple, too. Maybe request a very small percentage of annual profits be dedicated to a “laboratory,” staffed by millennial lawyers but overseen by a respected senior partner, with a mandate to identify a certain number of opportunities each year, prioritize those opportunities, and recommend them to the partnership, which must choose at least one project to fund.

Legal R&D is real. Tell your partners, and ask them whether they want to be the ones sidelined by someone else’s discovery, or the ones doing the sidelining.

 

Changing the lawyer assessment system

Every two months, I publish a short e-newsletter called “Dispatch” that’s sent to about 2,700 subscribers. (To sign up, email me at jordan@law21.ca). Each edition contains exclusive content for subscribers, which I sometimes share with my wider readership here at Law21 after a few months. In this post, I’d like to reproduce an item from a previous newsletter as well as some follow-up content inspired by a reader response.

The June 2017 edition of “Dispatch” led off with this item:

Check out what Linklaters, a Magic Circle firm widely regarded as among the global elite, announced several weeks ago: it’s going to “abandon individual partner targets in favour of focusing more on team performance,” as reported by Legal Business. Partner assessments will now “give added weight to practice performance, as well as client-winning, business development, training and innovation.”

The previous individualistic system, according to the article, “encouraged defensive gaming of the metrics, and a focus on narrow utilization and billing benchmarks rather than broader business goals.” In future, says managing partner Gideon Moore, “We won’t have individual partner metrics for billings and other measures.”

“There’s no ‘i’ in ‘team,’ d’Artaganan.” “Yeah, but there is one in ‘équipe.'”

Upon what basis does your firm assess the value and productivity of its equity partners? If it’s like most firms, the main criteria are business generated and hours billed — important features, obviously, but also very much based on individual effort, not firm performance or client deliverables. This is how lawyers have always been trained to think and act, of course, from the first day of law school to the last day of practice: how have you performed, when compared to everyone around you? But firms that value their lawyers only for their individual efforts inevitably wind up as loose affiliations of individual lawyer businesses under one roof, and rarely for the better.

Linklaters has a different idea: treat lawyers as members of an enterprise, a team gathered together to deliver the universal goal of solutions to client problems. Reward them not (just) for their personal achievements, but also for those of the team(s) and the firm to which they belong. You could go a step further and add “client outcomes” to the assessment criteria — your clients, I’m pretty sure, would appreciate it.

One of the world’s top law firms believes that partners should be assessed based on team performance and cooperative activity, rather than individual efforts and billings. Your firm might want to think seriously about that.

Several readers did. One was the managing partner of an office of an international law firm, who sent the following response:

[Y]ou articulate what really amounts to a rhetorical question on the merits of more effectively measuring and incentivizing team behaviour. Most all of us in leadership positions see the need. The problem is transitioning from a culture of personal performance metrics. What advice do you have on overcoming the enormous obstacles to transitioning to the promised land?

This is, essentially, a change management question, which we all know is the trickiest challenge in law firm leadership. And to be clear, what this challenge requires is a full-scale change management and implementation program, one that’s been painstakingly planned and is professionally rolled out. I’m not proposing to describe such a program here — there are myriad resources and consultants to help law firms with this kind of thing. But speaking generally, and based in part on my response to my correspondent, here are some ideas along these lines for you to consider.

1.   This is the hardest thing you’ll ever try to do in a law firm. You’re attempting to implement changes that will directly affect how lawyers are assessed and valued within their firms — and, in all likelihood, how they make their money. This week’s bestowal of the Nobel Prize on a behavioural economist who helped identify the power of “the endowment effect” is a timely reminder that people tend to perceive any change in their status quo as a threat to their interests. That goes double for lawyers and triple for equity partners.

2.   Law firms tend to be low-trust environments. That’s a problem, because lack of trust within an organization exacerbates the friction generated by change efforts of any kind. You can’t just flip a switch and transform your firm into a high-trust workplace overnight; but you can be transparent and upfront about what you’re intending to do, and you can communicate it clearly, repeatedly, and personally. “Change management by walking around,” talking to people and actively listening to their responses, can at least help reduce the automatic resistance your plans will generate.

3.   Initial and ongoing communication of your plans is critical. Start with an all-hands, carefully planned, clearly explained call to action by the firm’s leaders that the firm is undertaking a change in how it measures lawyer performance, and especially why it’s making this change. Reinforce the call to action with outside experts, market data, and even client testimonials, as appropriate. But don’t stop there: Maintain ongoing communication, to ensure people don’t “forget” about this change, which is what they’d prefer to do. Keep talking and keep listening. Make clear that this isn’t going away.

4.   Start with “in addition to,” not “instead of.” Initiate your lawyer assessment changes as a kind of “parallel track” that encourages people to engage more often in certain activities, but doesn’t punish anyone for failing to engage in them. Start by incentivizing new team-oriented behaviours with bonuses, whether financial or reputational or both. But also be clear that the plan is to eventually transition these desired behaviours from “pilot project” status into the standard assessment system — and yes, into compensation calculations. Don’t mislead anyone about the ultimate goal.

5.   Don’t try to do it all at once. Choose a small, manageable number of team-oriented behaviours that you most want to encourage, so that people can focus their attention more easily. “Do these three things and you’ll get more praise and make more money” is a good way to grab lawyers’ attention. When you do transition these behaviours to the overall assessment and compensation systems, start with an amount or percentage small enough not to incite panic, but large enough to represent a noticeable enticement. (This part is obviously much more art than science.)

6.   Choose how you’re going to measure success. Will it be client satisfaction levels, on the theory that solutions-based assessment should produce better outcomes and happier clients? Survey your clients’ current satisfaction levels. Will it be more collaborative lawyers, on the theory that group-performance assessment will focus lawyers on working together to get the results the client asked for? Survey your current lawyer collaboration levels. Will it be more hours spent by senior lawyers mentoring juniors? Figure out where things stand now. Choose the benchmarks against which you can eventually show progress.

Seriously, Gimli, we’re not counting “orc necks hewn” anymore. Team goals, bud.

7.   Measure your progress and circulate the results throughout the firm. Congratulate those lawyers and groups that ticked the most boxes on your list of desired behaviours. Publicize a list of the lawyers and groups that earned “collaboration bonuses” over the previous period. If your culture would support it, list all practice groups is descending order of compliance, to trigger lawyers’ natural competitiveness. Publicly, repeatedly, and positively reinforce the behaviours you want to see, until the idea starts to really sink in.

8.   Be ready to absorb pushback from your lawyers, even up to the point of partner departures. Many firms lose their nerve at the prospect that some key business-driving personnel could walk out over these changes. But you need to have the right people on the bus to make this work, and you need to be prepared for some people to jump off. Before you launch this effort, have an honest internal conversation about who’s likely to leave, and whether that’s a price the firm is willing to pay to make this change happen. This is the gauntlet your leaders must be ready to run.

This process will take a long time and will not be painless for anyone, especially for the firm’s leaders. Immense patience will be required while the firm’s culture slowly reorients itself to the new behavioural priorities you’re encouraging. Resilience and fortitude will also be needed if or when your biggest rainmaker threatens to quit. Prepare thoroughly beforehand. Communicate at the start and throughout. Measure and update and reward progress continuously. This is the hard slog of real-world change, and it’s not going to be much fun, at least at the start.

But I also think it’s necessary. Individual performance metrics inherently drive me-first behaviours that can undermine attempts to build a firm-wide culture of performance geared towards the client’s interests. Hours- and origination-based compensation systems encourage lawyers only to bill hours and bring in business; these are certainly necessary, but they are no longer sufficient, conditions for a successful law firm in this market. Lawyers are deeply accustomed to being valued and rewarded for their individual efforts, and it will take time and effort to re-accustom them. Like I said, it’s the biggest challenge you can undertake.

But if you can pull it off, you’ll have well begun the transformation of your law firm from a 20th-century “hotel for lawyers” to a 21st-century legal solutions enterprise. And that’s where we need to go.

Tomorrow’s law firm, today

When I spoke at the Lexpo ’17 legal technology conference in Amsterdam earlier this year, I had the good fortune to finally meet Jacky Wetzels of Salesmoves (a Dutch consultancy specializing in business training, coaching, and strategy for lawyers and other professionals), with whom I had corresponded in the past. Our conversations led to an extensive interview about both my book, Law is A Buyer’s Market, and my thoughts on how lawyers and law firms can respond to the major shifts underway in the legal market. I’ve posted edited excerpts from my interview with Jacky below; you should read the full interview to get the longer version.

Never interrupt the compensation committee meeting.

Q. Could you share some of your ideas that come to mind when you think of the future of the law business?

A. Well, we’ll still have law firms in future. They’ll be strong professional businesses, they’ll give good service to their clients, and they’ll help the justice system work as well as it can. But most firms, 10 to 15 years down the road, won’t look much like they do today.

Whereas firms today generate 99%+ of their revenue from the real-time application of lawyers’ billed efforts, future firms will generate less revenue that way. “Non-lawyer” technicians, programmers, related professionals, and others will drive revenue in ways most firms don’t imagine today. The legal profession will have had to change its rules around fee-sharing with “non-lawyers” in order to attract and keep the best people in these areas, as a competitive necessity.

Ownership of these firms will change as well, from being 100%-lawyer to probably 50%+1 — maintaining putative lawyer control. This will affect almost everything we now assume to be immutable about firms, like compensation and promotion systems based on business generation and hourly billing. That will have knock-on effects in diversity, bringing more women into firms and especially their leadership ranks. Firms will be very purposely geared towards the interests of clients and the market, not to lawyers and partners as they are now. All of this will generate huge cultural changes.

Q. Let’s talk about the roles of leaders, lawyers and the other professionals in the law firm. Will it be lawyers using technology, or do you expect data scientists and other tech professionals to start taking over the jobs?  

A. Law firms, like most other successful enterprises, will be multi-dimensional. It’s not going to be just lawyers, supported by staff. It will be lawyers heavily supplemented by professionals and technicians from a broad range of industries and backgrounds. It will be not only lawyers’ services, but legal products made possible by the twinning of lawyers’ expertise and technicians’ know-how.

Yes, lawyers will absolutely use technology, but the nature of that usage will vary. Some lawyers will be deeply immersed in code as they create expert applications to answer commonly asked legal questions within financial institutions. Other lawyers will dip into predictive analytics before recommending whether to proceed with a litigation. It will depend on what makes sense for each practice area and market segment. Whether all these lawyers will do these things inside law firms, or on some superior platform, is an open question. But the more law firms resist change, the more these roles will leave firms and go to alternative platforms, or go directly to the client.

…but the best ship of all is “partner”-ship.

I’m really not sure whether lawyers will adapt well and start using new tools. But if we give lawyers new skills and attitudes, then yes, they can remain at the forefront of this market. I don’t see much interest by “non-lawyer” technicians in acquiring legal skills — they’ll recognize that the easiest way to access legal expertise is to ask a lawyer. In the future law firm, everyone will do their part, what they’re good at — division of labour. It works in every other industry, so I think it’s about time law gave it a shot.

Lawyers will have to choose our spots, figure out what we’re really good at that nobody else can do as well as we can. We won’t do everything in the future legal market — that seems absolutely certain to me. So the question is, what are we going to do?

Q. What skills do you think lawyers need to best cope with these challenges?

A. I’ve written about this in a few places now (here’s one), but I think we need to be equipping lawyers better in terms of collaboration, customer service, empathy, financial literacy, process improvement, and technological affinity, among other things. People sometimes deride many of these as “soft skills,” but I think that’s badly mistaken. Most of life is “soft skills.” The things that clients complain about most with their lawyers amount to soft-skill breakdowns — failure to listen, failure to empathize, failure to set expectations, failure to communicate.

If you talk to satisfied clients, both everyday individuals and corporate leaders, they’ll say the same thing: My lawyer listens to me, understands my situation, and responds to me in a way that makes me feel heard and recognized. You don’t need devastating intellectual power to provide that. Care about the person you’re speaking with. Stand in their place. See the world through their eyes. Commit an act of emotional imagination. It’s not nearly as hard as you think.

If there’s one thing we could use as a profession, it’s a strong dose of humility. We don’t have all the answers. We’re not the smartest people in the room. We’re not indispensable. We’re here to serve, not to be served. I would teach a whole law school class on humility if I could.

Q. What firms do you think will “survive” (stay profitable)?

A. I really think the difference-maker will be leadership. Not just the formal leadership of managing partners and practice group leaders, but the informal leadership of heavyweight rainmakers and political players inside a firm. Will a top-earning senior partner willingly and cheerfully divest himself or herself of 30% of their annual income, during the highest-earning final years of their career, in order to transition the firm to a new generation of leaders and ensure client continuity, or to invest in a powerful new technology platform that will generate massive revenue for the firm after the partner has retired? How many partners in your law firm would do that?

The hard reality is that very few partners would. It’s an unreasonable thing to ask. But leadership is about doing the unreasonable thing. It’s about taking a hit today so that others can enjoy some of your own good fortune later, long after you’re gone. It’s about stewardship and sacrifice for the next generation, paying into a fund that might never pay you back. The more people like that who are in your law firm, the better the chance that your firm will not just survive, but dominate, in the years to come. If you don’t have anyone like that in your firm, I suggest you start looking for your next position now.

Yes, these are photos from my Amsterdam trip.

Q. What can lawyers do in the meantime? 

A. Three practical steps. First of all, understand who and where you are. What is your unique value proposition to the market? Emphasis on “unique” — what have you got that no one else has, or that no one else does unquestionably as well as you? Collect intelligence on your market presence, or have someone do it for you. It’s no insult to say the category of their “unique value” is smaller than most lawyers think. If you don’t have the value proposition that you want, which one do you want? Then set yourself the task of establishing it.

Second, reach out to the markets and clients you want to serve and learn everything you can about who they are, what they experience, where they’re going, and what they need. What they need won’t always be what they tell you they need, by the way. Know your markets cold.

And third, start acquiring the skills and tools and expertise, wherever you can, as soon as you can, to present the unique value proposition you want to the markets you’ve researched and learned about and have committed to serve. That’s as good a start as any.

 

 

The revenue-neutral associate

Last month, while writing an article about professional development in the law, I impulsively posted the following question on LinkedIn:

Quick survey for those of you who began your careers as law firm associates: How many months and/or years did it take before you felt like a reasonably competent and confident lawyer?

Use anytime during your first five years in practice.

The answers came rolling in — more than two dozen in a couple of days. The lowest number of years offered was two, the most was ten, but the frequently cited median was five. Only one person said they never felt unready for law practice; everyone else said, essentially, “It took me years to feel like I knew what I was doing.”

Yes, small sample size and all that, but I think there’s a lot you can take from this. One takeaway is solace: If you felt overmatched and out of place during the opening months and years of your legal career, you were far from alone. Another is insight into the lawyer mindset: For all we try to project confidence in ourselves and our abilities, most of us suffered from impostor syndrome for years after our call to the Bar, and I’m sure many of us still do. A third is confirmation that, yup, law school really does do a terrible job of preparing us to be lawyers.

But what those results also affirmed for me was a strong suspicion I’ve harboured for years now — that expecting new law firm associates to perform billable work is kind of ludicrous.

There’s a widely held assumption in law firms that new associates should be billing hundreds of hours within their first months on the job, and many thousands of hours within their first two or three years. At more than a few firms, an associate’s failure to meet his or her first-year billing targets can permanently dim that lawyer’s prospects in the eyes of management or can even result in early termination. Associates learn this quickly, and drive themselves to generate work that can be added to a client bill regardless of its utility. Because most new associates possess low skill levels, their work product tends to be either (a) utterly rote and low-value, (b) riddled with errors, (c) subject to massive editing and/or discounting by partners, or (d) all of the above.

Clients, of course, figured this out years ago. Some of them indirectly advised firms of the problem when they began refusing to pay the billed hours of first- and second-year associates. Those clients without the confidence or leverage to withhold payment on first-year bills pushed for discounts or just gritted their teeth and signed off. But the message they were sending was the same: “Your least experienced people add very little to your value proposition. We don’t want to pay for their efforts. You should do something about that.”

Firms say they are doing something: investing in professional development, sending their new associates off for business training, and so forth. I’m sure many of these activities pay at least some dividends immediately, and others further down the line. But almost all these efforts share a fundamental drawback: they treat associate professional development as a part-time endeavour. Taking courses and acquiring skills is something associates do in between their “real work” of serving partners and billing hours. They’re expected to generate billable work with 90% of their time while slowly learning how to produce that work in the other 10%. It’s like having to earn a living as a cab driver while still enrolled in driver training school.

This drawback, in turn, is founded on a more serious issue: the common belief throughout law firms of all sizes that inexperienced, low-skilled lawyers should be generating revenue within weeks of their arrival in practice. Law firms that push law schools for better “practice preparation” and train their new associates intensively upon arrival are certainly trying to do right by their associates and their clients — but their good efforts nonetheless stem from an assumption that new lawyers should be “ready to bill” at the earliest opportunity.

I wonder if that’s realistic, and I wonder even more if that’s healthy. I don’t think a person can switch from being a full-time student (even an articling student) to a full-time fee-earner that quickly without experiencing some mental and emotional whiplash. By forcing new lawyers into high-target fee-earning roles this early in their careers, we’re trying to radically accelerate a development process that’s meant to take much longer — maybe as long as five or ten years.

My modest suggestion, therefore — especially modest because I suspect few firms will adopt it — is that law firms consider re-envisioning the role of the new associate, de-emphasizing the importance of billing and emphasizing instead the primacy of training and experience. What I’m suggesting is the revenue-neutral associate.

Maybe not this kind of training day, though.

For at least their first two years in the firm, possibly longer, make the development of skills, knowledge and experience the primary activity and responsibility of new lawyers. Enroll them for months-long training in process improvement, customer service, business management, and new technologies, testing them at regular intervals throughout this period to assess their progress. Send them to client meetings to watch and listen and report back on what they learned, at no cost to the client. Take all the piecemeal, intermittent professional development that law firms provide to associates in between their “real work,” and make that their real work. Take seriously the process of turning raw prospects into polished professionals, because it’s really not a part-time exercise.  (I argued almost ten years ago that we should consider the lawyer development process to be seven years of education and practice, not just three years of education).

Can firms bill their associates’ efforts during this period? Yes, but only work that has legitimate value, and only to the extent necessary to help the firm to recoup some or most of the lawyer’s costs — that is to say, his or her salary, benefits, and associated support costs. That might come to only a few hundred hours in the first year, several hundred in the second, a thousand or more in the third — although smart firms will be pricing their associate-level work on a non-hourly basis anyway, making it even easier to support this kind of role. 

The goal of a revenue-neutral associate program should be that at the end of the designated period — two to four years — the new lawyer has been rigorously and professionally educated, mentored, trained, and skilled to such an extent that he or she can deliver real (if not extraordinary) value to the firm and its clients — and that in doing so, the lawyer has undertaken enough billable work to help cover his or her training costs for that period. A lawyer developed in this fashion will be equipped to provide much more valuable and expensive services than a typical third- or fourth-year associate who has had to figure things out on the job under tremendous billing pressures — if the associate has even stuck around that long.

Would this approach be workable for a $180,000 first-year associate? No — but then again, the $180,000 associate is a market abnormality based solely on big law firms’ desire to draw the attention of the most attractive law school graduates. The reality is that no $180,000 associate, no matter how smart or hard-working, is worth his or her salary — and the billing pressure firms place on these young people to justify their inflated salary damages these assets in their formative years. A revenue-neutral associate would be paid in line with greatly reduced billing expectations — and the promise of much higher-earning potential after a few years of high-calibre development. 

There is precedent for this idea. Back in the late 2000s, firms such as Frost Brown Todd, Ford & Harrison, Drinker Biddle & Reath, Strasberger & Price and the late Howrey LLP all experimented with “apprenticeship models” by which new associates were paid less but received extensive training and mentoring. It was a good idea that unhappily arrived ahead of its time — these programs were launched during the post-crisis recession, when it was hard to persuade new graduates to turn down high starting salaries in favour of lower-paying “training opportunities.” It’s a different world now: Graduating lawyers understand that they need marketable skills and know-how in order to have sustainable legal careers. Law firms that can offer a path to that future will have a competitive recruitment advantage.

This would, obviously, be a major change in how law firms view and use their associate lawyers. But I also think it’s a necessary, and in fact an inevitable one. For decades, law firms have been getting their clients to pay the training costs of their newest and lowest-skilled workers. No other business has the gall to do this — to send customers bills for all the low-value puttering around by the firm’s least useful employees and justify it as “training.” It’s not training — it’s years of immersion in the law firm’s least valuable and interesting activities, subsidized by the client.  

But now that train is coming to a halt. You know all about the myriad game-changing substitutes that have entered the legal market over the past decade — technology that can carry out basic legal tasks, outsourced platforms of flex-time lawyers and managed legal services providers, insourcing of work by corporate law departments themselves. These alternatives have arisen precisely because the market is tired of paying law firms inflated rates for low-value work by low-skilled associates.

Clients want a less costly and more effective replacement for the labour of unskilled yet expensive junior associates, and the market has been more than happy to oblige — it is offering equal or better options for “associate work” at a superior price. These options are not going away; if anything, they’re gathering momentum and increasing sophistication. The hard truth is that the day of the billable young associate is drawing to a close anyway. 

So think about the possibilities of a “revenue-neutral” approach to associate hiring and training, and how it could change the nature of professional development in law firms for the better. Law firms will have to find a solution to their associate-lawyer challenges before too much longer. The sooner this option is considered, the sooner solutions can be tried and a new approach to law firm associate development can be found. 

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From now until the end of September, or while supplies last, Law Is A Buyer’s Market: Building a Client-First Law Firm is available at a 10% discountVisit the sales page for Law Is A Buyer’s Market, proceed to the checkout, and in the “Discount Code” slot, enter “SEPT”. The discount does not apply to bulk orders of 10 or more copies, for which reduced prices are already available.

Should you go to law school?

“Letters! I get letters!” Well, actually, I get emails, and sometimes direct messages on LinkedIn, but the main thing is, people frequently write me with questions about what they should do in the new legal market. I respond as best I can, but I’ll give particular priority to anyone asking, as one person recently did, whether now is a good time to go to law school.

Best theme song for viewer mail ever.

These days, that question is almost begging for a putdown — are you trying to throw your money away? And as you’ll see, especially given everything I’ve been saying about the shrinking legal profession and the steep decline in law firms’ interest in associates, my response wasn’t filled with unbridled enthusiasm for the prospect. But it’s still a question worth regularly revisiting, because nothing ages faster than conventional wisdom, and the conventional wisdom right now is that law school is a mug’s game. That has become today’s pat answer — but it doesn’t address what tomorrow’s answer might be for the class of (I can’t believe it) 2020 and beyond.

My correspondent was writing from Europe to ask whether he should accept an opportunity to attend law school in North America. As I told him right off the top, a lot depends on context. Future legal careers will vary considerably by jurisdiction, industry sector, and practice type. So my response to him was necessarily broad in scope. But I thought it had enough generally applicable value that I would reproduce it, with some edits, here.

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This is not a good time to enter law school if you’re intent on becoming a “traditional” lawyer — that is, someone who knows the law, carries out various legal functions, collects a paycheque every two weeks, and repeats the foregoing for six to ten years until partnership comes calling. That type of career is close to being on life support.

The truly elite lawyers — unparalleled expertise, tremendous advocacy skills, heavyweight presence — sure, they’ll still call their own shots and make scads of money. But there’s no way for you to know whether you’ll become that type of lawyer. The safer thing is to assume you won’t, simply because the odds are heavily against it. That’s not a knock against you — it’s simply a reflection of the fact that maybe 1 in 100 newly graduated lawyers will follow that path to a successful conclusion, and most will be as surprised as anyone that they wound up there.

It’s a better time to enter law school if you have a relatively clear vision of what you want to achieve with the law degree and where you want it to help take you. Because if there’s one change I’ve seen with regard to a law degree over the past 10 to 15 years, it’s the evolution of the degree from being an end in itself to being a means to an end.

When I entered law school in 1990, to the extent I had any effective vision of why I was doing so (which I didn’t really), I viewed a law degree as an asset that, once obtained, I could immediately put to use by being hired somewhere to work as a lawyer. I don’t think you should rely on that outcome anymore.

Obtaining a law degree to help you get somewhere specific, though — eyes wide open and fixed on the prize you want — that makes a lot more sense to me. If it’s your goal to acquire a specific type of position within a particular industry or government sector, and you’ve concluded (with some evidentiary support) that a law degree is both a qualification and an experience that will help you get there, then it’s a much better bet. That’s a law degree worth pursuing — a stepping stone towards a larger goal that you’ve set for yourself and that you reasonably believe, because of your other qualifications and assets, you can achieve.

If you don’t have a specific life goal in mind, though, or if you’re set on engaging in the private practice of law regardless of what form it takes in future — well, on balance, I’d still endorse obtaining a law degree, so long as each of the following criteria are met:

1. The financial cost of the degree won’t crush you, now or later. Basically, if you can afford the risk that you could sink $150,000 (more or less — in some cases, way more) into something from which you’ll never derive much value, then sure, go for it. Bursaries and scholarships aren’t a solution unless they cover about half of all your costs — otherwise, they function more as enticements to enrol in a system that has a very loose connection between qualification and employment. It’s true that some legal education providers are trying to reform the system, and we should support those efforts; but it’s also true that many law schools have decided they’re okay with being training grounds for the already elite, and they assume at this point that you know this as well. So if you simply can’t afford the risk that this investment won’t more than pay for itself, act accordingly.

2. You’re bringing something to law school other than intellect and enthusiasm. My 23-year-old self brought nothing to law school beyond those two qualities, and I was finished as a practicing lawyer within 18 months of graduation. And that was back in the 1990s, when even halfway-decent law graduates could wind up on a six- to seven-figure partnership track. Try that today, and you’ll be a statistic before you know it. But if you’re older, if you’ve already acquired some skills and qualifications, if you’ve got first-hand experience managing or running a business or organization, or if you can use a law degree to amplify your existing assets in a known direction, then it’s worth pursuing. This is especially the case if you have technology, systems, or engineering skills — you will be in serious demand, and not just by law firms.

3. You’re truly flexible about what you might end up doing. It’s a myth that “you can do anything with a law degree.” But I think a slightly alternative take on the old saw applies: “A law degree can lead you almost anywhere.” A good legal education, in addition to providing you with some marketable knowledge and skills, should also set you up to pursue myriad paths in life. This is especially true now that a wide range of new legal careers is opening up. Recognize that “practising law” represents only a sliver of the many legal employment options that will be available to you from 2020 to 2060, and that many of the “alternatives” will wind up being more engaging and fulfilling than you might currently imagine. And if your path takes you outside the legal industry altogether, well, that’s fine too. A law degree should change your mind about some important things and set you looking, if not travelling, in unexpected directions.

That last point is important. There’s still pedagogical and intellectual value in a law degree, and while tallying up the very real costs and risks of obtaining that degree, it’s also important to weigh on the other side of the scale the equally real rewards that a legal education, properly delivered and properly received, can provide. And that brings me to a final argument in favour of going to law school: We need more good people to be lawyers.

I’m convinced that from a business perspective, the role of the lawyer will change profoundly in the years to come. But I’m equally certain that from a societal perspective, the importance of lawyers will not change at all — unless it’s to become even more pronounced. Every few decades, during a moment of crisis, society remembers why it really has lawyers: to protect the rule of law and advance the cause of human dignity. Society calls on lawyers to do that every so often, and it’s really, really important that enough good people become lawyers that we can respond in sufficient numbers. I’m not saying the legal profession deserves all these good people — I voiced my concern more than five years ago that the profession has squandered its inheritance in this respect — but we need them all the same.

Now, if you’re reading this, and the thought of defending the rule of law at a moment of crisis bores you, then please, go become a hedge fund manager or something, where you can rake in money and prestige until the day the revolution comes. But if the prospect instead stirs in you a feeling of urgency and purpose, if you feel drawn to a profession that will offer a broad spectrum of engaging activity but is rooted in a single unifying mission — and you can somehow afford the risks involved in getting there — then please sign up. We need you.

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Hey, you know what? All this talk of law school makes me feel like having a book sale. Start of the school year, and all that.

From now until the end of the month, or while supplies last (whichever comes first), Law Is A Buyer’s Market: Building a Client-First Law Firm is available at a 10% discount. Visit the sales page for Law Is A Buyer’s Market, proceed to the checkout, and in the “Discount Code” slot, enter “SEPT”. The discount does not apply to bulk orders of 10 or more copies, for which reduced prices are already available.

Legal Demand 3.0

Every market has both supply and demand. But law is unusual in the degree to which the vast majority of attention has been paid to the supply side. I’m willing to wager that at least 80% of everything that’s been written about legal services has concerned lawyers and law firms — and most of the remainder that’s been written about clients has shown up in just the last 10 or 15 years. Maybe that’s what monopoly markets produce: a certain amount of navel-gazing by the people and institutions that call the shots. “Whither lawyers?” and so forth.

It’s past time we began paying more attention to the demand side of legal services, given that the law is a buyer’s market and all. I don’t write as much anymore about the consumer and small-business legal market, but we’ve already seen a significant power shift towards buyers in this sector, thanks to services like LegalZoom, Rocket Lawyer, and Avvo. Once somebody develops a truly reliable and accessible chatbot for everyday legal questions (and that shouldn’t be too much longer), this process is going to rapidly accelerate. Regulators that are even now trying to push the genie back into its bottle will be left struggling to catch up with reality on the ground.

But in this post, I’m focused mainly on the corporate and institutional legal markets — specifically, on how the demand side of these markets has shifted through three distinct phases over just the last decade or so. I decided to classify these phases according to naming conventions for obsolete software products, because that’s how I roll.

“Demand ’95” would’ve been even more hip.

Legal Demand 1.0. In the beginning, there was the client and the law firm, one buyer and one seller, side by side in perfect symbiosis. When the client encountered a legal issue that was too complex or resource-intensive to handle internally — and a lot of legal issues fell into that category — the client threw it over the wall to the law firm. The firm tackled the issue in the time-honoured way — handed it to a lawyer, gave the lawyer a clock to record his or her hours, and let nature take its course. In the fullness of time, a resolution of the issue was tossed back over the wall, along with an invoice for lawyer time spent, photocopier ink consumed, and so forth. The law department signed off on the bill — not necessarily with glee, but signed off nonetheless — and the cycle continued.

The remarkable aspect of this system was its longevity. It stretched from the murky beginnings of the legal services market right up to the early 2000s — and in some sheltered jurisdictions and sectors, continues to this day. In fairness to its participants, it’s true that this was the only model available for anyone’s consideration — but it’s also true that it met the basic needs of all the parties involved. Law firms received regular streams of (not particularly demanding) work, law firm lawyers pulled down massive annual profits, and in-house lawyers spent the corporation’s money on law firms that in many cases, they hailed from and in some cases, would eventually join as partners.

That’s not to say this was a perfect world. In-house counsel complained regularly about inefficient firms, outrageous rates, and arrogant outside counsel. Articles appeared in the legal press, seemingly in a regular rotation, decrying the billable hour and calling for something better to replace it. CEOs grumbled about the “cost center” that Legal had become. Lots of talk, but little action. This steady state would continue until something broke in from the outside to change it. And starting in 2007, something did.

Legal Demand 2.0. The antecedents of this stage can be traced back five or ten years before the collapse of Lehman Brothers and the onset of the Great Financial Crisis. Primordial substitutes for lawyers and alternatives to law firms had already begun to emerge at the edges of the market: LPOs in the late 1990s, flex-lawyer platforms in the early 2000s, technology-assisted review in the mid-2000s. But when the Great Recession swept through the world in 2008 and brought many companies almost to their knees, this growing array of legal service alternatives met an urgent corporate impetus to corral costs, reduce risk, and entirely rethink the notion that Legal was a world apart.

Phase 2.0 of legal demand involved one buyer and multiple sellers of legal services. In-house counsel had a mandate from upper management to get more done with less money, and they quickly realized they could never achieve that goal by relying on law firms for all their outside needs. But now they didn’t have to: there were multiple sources available to them for different types of legal services at different price points. Non-firm options included contract lawyers, flex platforms, LPOs, and managed legal services companies; non-human options included powerful software programs, burgeoning AI platforms, and efficiency-enhancing process improvements. They could even find a few boutique and NewLaw firms to do outside counsel work differently and better.

This was, and still is, the multi-sourcing era in legal services. It kicked off in earnest in the late 2000s and is still accelerating today. It’s the rare general counsel who believes she can still get all her legal needs from traditional law firms without facing hard questions from the CEO, and it’s the rare law firm that hasn’t experienced a significant diversion of its corporate client revenue stream into other channels. And the least expected alternative option to law firms has turned out to be the client itself: insourcing its own legal work, taking back or keeping ab initio straightforward tasks that previously had been routed to outside counsel as a matter of course. Demand 2.0 launched in 2008, and it’s still going strong; but it’s about to be superseded by a third stage.

Legal Demand 3.0. Up until now, true to the tendency I identified at the start of this article, we’ve been focused on the supply side, first with law firms as the sole providers of legal services and then with an array of new suppliers competing with them. But starting a few years ago, and accelerating rapidly right now, we’re seeing multiplicity on the demand side as well. It’s no longer just the Legal Department calling the shots for corporate buyers; there’s now a trifecta of players on the demand side. Legal has been joined on the one side by Procurement, and on the other by Legal Ops.

How the traditional law firm sees Demand 3.0.

Procurement professionals are pricing experts. They are very good at ensuring the company pays as little as it feasibly can for the products and services it purchases. They have sophisticated pricing models and mechanisms, they have wellsprings of data on law firm billing rates, and they are skilfully trained in the art of negotiating price; in most cases, they are up against law firms lacking all three. Following some initial tensions between Procurement and Legal, during which each side scouted out the other and jockeyed for position, there’s now an increasingly common front, as Procurement accepts that buying legal services is not like buying pencils, and Legal accepts that Procurement can help the law department achieve the cost certainty now demanded of it.

As important as Procurement is, I suspect that the other new player on the demand side, Legal Operations, will prove to be even more impactful. Whereas Procurement seeks to lower the price of legal services, Legal Ops is interested in lowering the volume of legal services, reducing risks and eliminating unnecessary or inefficient activities. Legal Ops, it seems to me, would like to re-engineer corporations’ entire approach to their legal risks and obligations. Can we act in ways that reduce our legal exposure, streamline our legal processes, standardize our legal activities, and minimize our overall legal spend, both inside and outside? These are important questions, and as companies begin to answer them under Legal Ops’ leadership, the whole corporate legal market will be shaken to its roots.

One interesting dynamic to note here is that there are fewer lawyers in Legal Ops than there are in the Legal Department itself, and fewer still (possibly none at all) in Procurement. This is one of the main reasons why Procurement and Ops are getting so much done so quickly: they’re not hamstrung either by lawyers’ general change-aversion or by the habitual tendency in many law departments to mimic the habits and behaviours of law firms. Many in-house lawyers started their careers in law firms and carry with them the unconscious cultural assumption that law firms are the center of the legal universe. That is not the way Legal Ops and Procurement think, and it is not the way they will act. That could have implications, down the road, for just how much authority and jurisdiction the Law Department will retain by the time this process sorts itself out.

Demand 3.0 is just getting started, and at this particular moment in the evolution of the legal market, you can find all three types of demand operating in different sectors, lending a growing sense of chaos to an already complicated landscape. Both the demand and supply sides of the market are in flux —  the three dimensions of Demand are sorting out who’s best at doing what and sizing up the increasingly diverse Supply environment, while traditional law firms are either adapting to their new competitive conditions or pulling the sheets up over their head and hoping it all works out somehow.

I can see this state of affairs carrying on for another three or four years, probably. At some point soon, the Demand side of the legal services market will have worked out its strategies and powered up its engines, and it will be a formidable player in the market. The Supply side is experiencing both the constant appearance of new alternative service providers and an over-arching process of consolidation and adaptation among law firms. Ultimately, this will produce larger, stronger, and equally formidable suppliers — but this process is likely to take longer, and for at least the next several years, Demand figures to have a very good time of it.

So where does that leave law firms? As I mentioned, several prominent firms (and many other less prominent ones) have made great strides in adapting to these new circumstances, upgrading their internal operations and expanding their external business development activities to include these new dimensions of Demand. But they are still the exception, rather than the rule. And even among the most progressive and innovative firms, there still remains one singular handicap that’s going to stymie their efforts to gain market share.

Every other player in this market, both Demand and Supply, has recognized and acted on one killer observation: You can’t succeed in this market by using lawyers alone. Alternative legal service providers combine lawyers and “non-lawyers,” professionals and technicians, machines and processes, to deliver what their customers need. On the client side, in-house lawyers are being joined by in-house procurement and in-house operations to form a multi-dimensional legal machine, accepting that lawyers alone can only get you part of the way to your goal.

Lawyers and law firms have not yet accepted this. Lawyers, through their regulatory arms, continue to beat back every attempt to liberalize the rules surrounding legal services provision and “non-lawyer” law firm ownership. Law firms, forced by regulation to restrict equity to practicing lawyers, compound their troubles by discounting the skills and perspectives of any “non-lawyer” professional or technician, continuing to pay fealty in their cultures and practices to the Cult of the Lawyer. They are on the wrong side of history.

The future legal market is multi-dimensional and multi-disciplinary. Today’s legal market, thanks to Demand 2.0 and 3.0, has already come quite some distance towards that goal. When are lawyers going to see this and act on it? Or will they?

Law firms’ problem with women

The last time I wrote about women and the law, it took weeks for the flames to die down. Only a glutton for punishment would return to this topic again. Ahem.

So I’ve been collecting articles about the seemingly endless issue of the apparently insurmountable barrier to the full participation of women in law firms. Another article on that score, this one from The New York Times earlier this week, galvanized me to pull them all together and talk about them. To wit:

  • A Bleak Picture’ for Women Trying to Rise at Law Firms (The New York Times, July 24, 2017): “Women are 50.3 percent of current law school graduates, yet they still make up just under 35 percent of lawyers at law firms, [according to the 2017 Law360 Glass Ceiling Report.] Most important, their share of equity partnerships — where the highest compensation and leadership positions are lodged — remains at 20 percent and has not changed in recent years, the report found.”
  • Study Shows Gender Diversity Varies Widely Across Practice Areas (The American Lawyer, April 17, 2017): “The majority of AmLaw 200 practices have an average female head count ratio of 30 percent. Practice areas with the highest compensation and focus within Big Law, such as banking, intellectual property and litigation, had the lowest percentages of women. Women made up only 35 percent of Am Law 200 litigation departments, 31 percent of banking and taxation practices and accounted for 27 and 23 percent of IP and M&A teams, respectively, [according to a study by ALM Intelligence, Where Do We Go From Here? Big Law’s Struggle With Recruiting and Retaining Female Talent.]
  • The Gender Pay Gap for Big Law Partners: 44 Percent (Bloomberg Business of Law, Oct. 12, 2016): “Of the 2,153 [BigLaw] partners polled [by Major, Lindsey & Africa], men earned an average of $949,000 per year while women brought in $659,000. The differences in partner billing rates ($701 for men and $636 for women) and hours billed (1,703 for men and 1,632 for women) remained relatively small. But the results show women still lag behind significantly in originations, pulling in an average of $1,730,000 versus $2,590,000 for men. … Lack of credit for origination is a common complaint leveled by women in BigLaw.”

And here are a few other recent articles that have been archived at Lexis-Nexis and have thereby been hidden from the world at large:

None of this, of course, is new. When I was a legal newspaper editor 20 years ago, we were assigning articles on the discrepancies between men and women in law firms. I have to admit, if you’d asked me then whether the situation would have resolved itself, or at least improved, 20 years into the future, my optimistic younger self would have said, “Of course!”

Yet here we are, in 2017, having the same discussion, talking in the same careful way about diversity and representation and trying not to upset anyone in upper management. “It really is striking how much attention this problem is getting without any movement whatsoever,” Daniella Isaacson, a senior analyst for legal intelligence at ALI, is quoted in the AmLaw article above. Yes, it is.

I want to say two things here about causes and one about remedies.

The first point I want to make is about sexism. In almost every conversation we have about women in law firms, some folks go to great lengths to de-emphasize the role of overt, intentional sexism in law firms’ overwhelming maleness, in an effort not to offend (male) senior decision-makers. I don’t buy it. There’s an enormous amount of overt, intentional sexism in law firms, as there is in society generally. There are plenty of male lawyers who think less of their female colleagues as a group, who denigrate them (or tolerate those who do), who are fully aware that men exercise more power and make more money in their firms than women do and are perfectly fine with that. Let’s not pretend that sexism isn’t a significant contributor to women’s status in law firms. I’ve seen and heard differently, and I’m confident that you have too.

The second point I want to make is that in addition to sexism, the fundamental structure and culture of law firms relegate women to second-class status. Mark Cohen of Legal Mosaic phrased this issue succinctly and accurately: “BigLaw was architected by men for men.”

Today’s law firms were built by and for late-20th-century married white men, and everything about these firms reflects the choices, habits, preferences, and conveniences of their builders. Anyone is welcome to join these firms and experience great success — just so long as they adopt the choices, habits, preferences, and conveniences of their architects. Work long hours, glad-hand clients, immerse yourself totally in the job. Can’t manage that, because you’re pregnant or you’ve got primary home care or child-care responsibility? Too bad for you. Everyone else here can manage it just fine.

How to succeed in law firms without really trying.

The traditional law firm is more favourable to men than to women because men built it. The people who founded and built these firms enjoyed preferential status in business and society and could leave child-rearing to their domestic partners; they could walk through any door they liked and could spend all the time they wanted in the rooms on the other side. From their perspective, spending 3,500 hours a year on work and billing two-thirds of that time is normal. It’s just the way things are. If you struggled to succeed in this environment, you were the problem. If you tried to challenge the normalcy and sensibility of this environment, you were a threat. If you’ve wondered what the term “privilege” refers to (the non-legal, non-fun kind), this is an example.

So to a certain extent, calling out law firms for being unwelcoming and discouraging to women is like criticizing water for being wet. Law firms were built by and for men; so were most other businesses and organizations in the world. The great majority of other businesses and organizations, though, got over it. They decided that maintaining their default male architecture put them at a strategic disadvantage in terms of talent acquisition and market competitiveness, and they adapted. They haven’t adapted fully, not by a long shot, but most are at least trying.

Similar attempts to restructure law firms away from their “maleness,” however, have met with much less success. At the heart of law firms’ inherent inhospitability to women is the lawyer compensation system, which rewards the outlay of enormous amounts of lawyers’ time and effort, and the procurement of clients and business, above everything else. Go get clients and bill tons of hours: that’s the law firm advancement system in eight words. I and many others can speak from experience how incredibly hard it is to move law firms away from this system of valuing lawyers’ contribution. And yes, partly this is because it’s difficult to rewire any company’s reward system, at any time.

But let’s not kid ourselves: at least as important a reason is because the people who own and control the firm (80% male, most of them in their 50s and 60s) benefit directly from time- and effort-based remuneration, because they have loads of time and they have almost nothing distracting them from their efforts to go get clients and bill tons of hours.

It’s not just that this system makes these guys more money; it’s that it values them for who they are and what they do. This system affirms to them that their choices are the right choices; it vindicates and rewards them for doing things their way. It’s the mirror on the wall assuring them they’re the fairest of all. And if a side-effect of that system is to drive away by the thousands women (and men) who don’t live that life or choose those choices, well, c’est la guerre.

I promised one thing about remedies. I must tell you that I don’t have much to offer here (although happily, others do), because neither sexism nor law firm compensation systems are going to change tomorrow. But I do have an appeal to make, to any law firm lawyer who has read this far and has not stomped off feeling bruised or offended.

My appeal is this: Imagine a world in which half of all graduating lawyers are men (as is the case now), but only about one-third of your firm’s lawyers are male, and barely a fifth of your men are equity partners. Moreover, your few male lawyers are predominantly found in practice areas widely regarded as less profitable and less influential than the practice areas dominated by women. To make matters worse, your women lawyers out-earn your male lawyers by hundreds of thousands of dollars every year. Imagine further that your firm has been like this for decades.

Now ask yourself: Wouldn’t you think there was something wrong with that? If you happen to be male, sure, you’d almost certainly feel like the deck was stacked against you and your fellow men. I’m not appealing to your sense of fairness, though, but to your business instincts.

Wouldn’t you think that your firm was being hamstrung by some kind of systemic, gender-based flaw in its retention, compensation, and promotion practices? Shouldn’t simple arithmetic suggest that about half your lawyers should be men, and that maybe you’ve got a whole lot of less qualified women lawyers hanging around the office and filling out your equity ranks? Doesn’t it seem like you’re needlessly missing out on a whole bunch of great male lawyers? That somehow, you’re not getting the full benefit of what the legal talent market has to offer? And if the answer to all these questions is yes, is it really that hard to flip the scenario around the other way?

My last word on the subject to law firms is this: If you have a significant gender imbalance within your firm’s lawyer population, and especially within your firm’s equity partnership, there’s something wrong with your firm. Somewhere along the line, somewhere inside your firm, something went off the rails and crashed. You don’t have enough of the best people — you demonstrably, obviously, do not. And the reason you don’t have enough of the best people is that you are systematically driving half of them away. This isn’t normal. No matter what it might feel like to your most powerful people, if your firm is 65% male and your ownership is 80% male, your firm is fundamentally screwed up. Fix it.