Thinking differently about legal AI

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

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

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

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

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

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

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

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

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

1. Volume and Costs

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

Tell the GC the document review lawyers have arrived.

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

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

2. Expertise and Scarcity

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

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

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

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

AI in the (Jude) Law.

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

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

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

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

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

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

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

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

A New Framework

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

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

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

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

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

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

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

 

As good as it gets?

I’ve been thinking recently about three separate issues fundamental to the provision of legal services. I’m now starting to wonder if we’re actually dealing with a single issue with three related manifestations.

Here are the three:

Standard setting: What are the baseline standards of competence, accuracy, and effectiveness in legal task performance and legal services delivery, and how can these standards be established and promulgated most effectively? This question was prompted most recently by the efforts of the Corporate Legal Operations Consortium to standardize many aspects of legal services and operations, as well as by the founding of the Standards Advancement for the Legal Industry (SALI) Alliance. I’ve also written about this issue for the NALP Professional Development Quarterly.

Quality assurance: Does the performance of legal tasks and the provision of legal services by lawyers and law firms meet those baseline standards of competence, accuracy, and effectiveness? This question was prompted most recently by a fascinating study of legal briefs that were submitted by 20 leading law firms in California, which found those briefs riddled with errors in law, grammar, and even the spelling of the judge’s name. I asked myself: Isn’t anyone training the people who are drafting these briefs? Isn’t anyone reviewing this work before it goes out?

Client value: How can we define and measure the degree to which the people who buy legal services from lawyers and law firms receive a worthwhile and satisfactory result from the services delivered? We keep saying that law firm strategies, lawyers’ fees, and client service standards should all be aligned with “client value,” but neither lawyers nor clients themselves can consistently define what the term means in actionable, measurable terms. This question was prompted most recently by my two-part series of posts on legal services pricing, as well as by a growing amount of literature about defining client value.

The more I think about these three issues, the more I’m coming to think that they’re fundamentally connected. That is to say, they’re all variations on the same basic question: Are legal services any good?  Are the people who sell legal services doing good work, and are the people who buy legal services getting good results? And how can we prove that the answers we provide to those questions are correct?

This might seem like too abstract or philosophical an inquiry — if clients get results and lawyers get paid, who cares about how “good” the work is? But I think it’s important, and to help explain why, I want to use an illustration from medical history.

Although Dr. Joseph Lister first published his antiseptic treatments for surgery in 1867, it took a generation before they were widely adopted by the medical profession. I’ve referenced Lister’s story here before, and linked to Atul Gawande’s majestic account of it, when talking about rates of innovation in the legal profession.

Advanced medical procedures, circa 1880

But what I want to focus on here is the fact that, at least as late as the 1880s in Europe and North America, non-septic surgery was considered “normal.” Not only was it standard practice for surgeons’ gowns to be caked in blood and bodily fluids from previous operations, but it was considered a mark of professional distinction to have a gown that was so encrusted it could virtually stand on its own. Your grandparents knew people who had surgery under these conditions. Some of them even survived.

If you had convened a discussion within the medical field in 1880 to talk about standard setting, quality control, and patient value, it’s probable that filthy, detritus-strewn surgical gear and infection-plagued patients would have been accepted as (literally) standard operating procedure. (Gawande points out that “the discharge of pus from a surgical wound was thought to be a necessary part of healing.”) Most doctors would not have disputed that, and most patients would have agreed. And a major reason for this state of affairs was that hardly anyone imagined that it could or should be any better — they just assumed that this was as good as it gets.

There are, I think, two stages in the evolution of any professional discipline, whether law, medicine, engineering, architecture, accounting, or whatever.

  • The second stage is the steady advancement, usually gradual but sometimes in leaps and bounds, of experts’ understanding of the natural forces that underlie their work and the development of more reliable and effective tools and practices to achieve better results.
  • The first stage, the precondition to the advancement of better practices and superior results, is the conception and recognition that “better” is something that even exists — something that’s possible, practical, and desirable.

Most professions advanced through the first and second stages a while ago. I’m not certain that law has gotten past the first stage yet.

If you ask most lawyers today, “Are legal services any good?”, the answer would be, “Well, obviously.” If you asked most clients, “Are legal services any good?”, the answer would be, “Yeah, I guess.” But so far as I can tell, there’s never been any sustained, objective inquiry into that subject. It has never even occurred to most lawyers to ask.

I’m not talking here about “access to justice,” at least not in the way that term is generally understood. It’s widely accepted that most people can’t gain access to legal procedures and remedies that could help solve their problems and improve their life situations. But even if that issue were to disappear overnight — if we were somehow to institute universal legal-care coverage, so that everyone in the world would have access to the best legal services available today — that doesn’t answer a prior question: Are the best legal services currently available any good? Kings and titans of business in the 19th century could afford doctors with the filthiest operating gowns available. That didn’t mean they were well served by it.

And if we’re not certain whether the best legal services are any good, what does that say about the legal services that we know are less good? Because we all accept that the services of the best lawyers are superior to the services of the average lawyer, and vastly superior to the services of the below-average lawyer (a category, let’s not forget, that by definition represents almost 50% of the legal profession). You might object that even the “worst lawyer out there” is good enough to practise — but would you be willing to test that theory by hiring that lawyer for your own legal problem?

So I think that if we’re being really honest with ourselves, as a profession, we would recognize and concede that we can’t actually prove definitively that legal services are any good, because we’ve never applied ourselves fully to the question of what a “good legal service” ought to be. As I noted in my NALP article, we’ve barely inquired into what “good legal service” currently is. It’s no defence to say, “Legal services today are as good as we can make them,” because (a) we don’t know whether that’s true, (b) we’ve never tried very hard to discover whether it’s true, and (c) read the paragraph about Joseph Lister again.

I do have a point, and I’m coming to it.

  • It’s good that we’re talking about setting standards for legal services and operations, because cross-platform interoperability of legal procedures will increase efficiency, lower costs, and reduce errors that result from needless systemic idiosyncracy.
  • It’s good that we’re examining whether law firms’ work product meets acceptable minimum standards of competence and accuracy, because lawyers can become lazy and smug about their “excellence” and thereby threaten both their clients’ interests and their own professional respectability.
  • It’s good that we’re striving to better understand what we mean by “client value,” because that term can easily morph into a cheap talisman containing only fake empathy and empty promises of efficacy (some might say we crossed that bridge a while ago).

All these inquires are good and important. But they should be accompanied and guided by an equally strenuous inquiry into what kinds of baseline and aspirational reference points we’re using when we talk, inevitably, about the “quality” of anything that takes place in the legal market.

Okay, I didn’t finish reading it either.

Because not only do we rarely understand what we actually mean by that word, we don’t even know what it means when applied directly to the things we do for the people who hire us to do them. Are legal services any good? How would we possibly know, unless we had formed a very clear conception of what “good” means, can mean, and ought to mean when used to describe legal services? And by the way, who gets to decide that?

Answering those questions is a task beyond my limited skills. But I would urge you to give it deep and serious consideration — if you happen to be a legal academic or someone with access to a legal journal, you might want to take it on as a foundational question for the future development of legal services. Since the search for “standards” inevitably leads to objective criteria, and the search for “value” leads just as inevitably to subjective measures, this won’t be an easy task. But I think we need to at least try.

One hundred years from now, legal historians might regard even today’s best lawyers as the equivalent of 19th-century doctors who  cut into patients’ bodies with unwashed hands. Sure, it’s conceivable that we live in the best of all possible legal worlds — that legal services can never be better than they are today, and our only task now is to standardize our ideal practices and assure clients that they’re receiving great value. But I wouldn’t bet on that.

Don’t fear the rainmaker

If you’ve spent much time in a law firm, especially in any kind of managerial capacity, you’ve probably run into the steel barrier to change known as “The partners don’t want to do it.”

Sometimes, it’s as simple as “One partner doesn’t want to do it.” And the more powerful the partner, the more successful will be the resistance to any given initiative, especially one that seeks to change anything important about how the firm operates. Our standard response to this resistance tends to be a fatalistic shrug: the partners own the business, so they have the power to do what they want with it.

I’ve had a number of conversations of this type recently with law firm leaders and managers, and it’s led me to reflect on a subject we don’t talk much about: Power in law firms. Who really holds it, and who doesn’t? How is it actually used, and why? And is it time to re-examine some of our assumptions about how power is deployed within law firms? This post tries to consider these questions and suggests that we should answer the last one in the affirmative.

1. The Source Of Law Firm Power

Where does power reside in a law firm? And what is the source of that power?

Power, of course, resides within every company and organization — the power to shape the organization’s external strategic decisions and direct its internal tactical maneuvers. In most organizations, that power is explicitly defined and formally arranged in ways that make its effective exercise possible. The company CEO can do certain things; the board of directors can do certain things; the majority shareholders can do certain things. Not only can they do these things — they are expected to do these things. Part of the deal with having power is fulfilling the responsibility to use it.

I never fully bought this. What, if you have no power, then it’s hakuna matata?

In this respect, as in many others, law firms are odd beasts. Power in law firms is more diffused and informal than in other organizations. Almost all firms have a managing partner, but this person is normally considered first among equals, and nobody (including the managing partner) imagines that he or she wields actual authority over other partners. In some law firms, the managing partner, far from being chosen for his or her authority and decisiveness, seems to have been selected for his or her geniality and disinclination to interfere with the affairs of others.

Within the firm’s practice or industry groups, much the same applies. Leadership often falls to the lawyer with either the largest book of business or the strongest reputation — but the actual position of Practice Group Leader doesn’t normally confer much real power on a partner who didn’t already possess it. I wouldn’t go so far as to call formal leadership roles in law firms “ceremonial,” but I don’t think they’re that far from it.

Now as noted above, in pretty much every law firm I’ve encountered, it’s assumed that power resides with the partners based on their “ownership” of the firm, the equity stake they hold in it.

But something doesn’t quite add up here. Every equity “stake” in a law firm is, strictly speaking, equal. In a law firm of 100 partners, each partner technically has a 1% equity share in the firm. No shareholder possessing a 1% stake in a company would try to exercise veto power over the company’s strategic direction or tactical decisions. And if he or she tried to exercise such a power, the company would laugh off the effort.

Yet most law firm partnerships contain a handful of lawyers who can and do launch, or halt, any initiative they like, and everyone else acquiesces to their desires. Let’s suppose a law firm in which Partner A receives ten times as much money in compensation as Partner B in a given year, and is unquestionably more powerful than Partner B within the firm. This is not because Partner A holds 10 “shares” in the law firm to Partner B’s single share: they each “bought into” the firm with a roughly equal investment of capital when they were admitted to the partnership. So the simple fact of equity ownership itself can’t fully explain where real power is located.

Alright, so does real power reside in the ability of a partner to generate revenue? This seems to reflect conventional wisdom: the more money you bring into the firm, the more power you exercise. But here too, there are gaps in the reasoning. A senior associate or non-equity partner might bill as much revenue, if not more, than your average partner. So if the generation of cold, hard cash was the key to power, then the leveraged labourers deep inside the pyramid would be the ones running the place. As we know, they are not.

So maybe power really resides in the ability to bring to the firm clients with paying work. This is closest to the reality in most law firms: the people who “control” the firm’s relationships with its biggest or most important clients are the real power brokers. If a partner who controls key client relationships wants something, that partner will get it. If he or she doesn’t want something to happen, it doesn’t happen. There are only a small handful of such people inside each firm, and these are the people who possess real power.

We call these partners “rainmakers,” which is a lovely word, about as close to poetry as most lawyers get. But you know what rainmakers are called in the rest of the world? “Salespeople.” That’s really the essential nature of who they are and what they do. And law firms are the only business I can think of where the salespeople effectively run the company.

2. The Exercise of Law Firm Power

So we’ve established, as a proposition at least, that top salespeople possess and wield most of the power in law firms. If that’s the case, then here’s a follow-up question that interests me: How is that power exercised in practical terms? I mean, how is a salesperson going to wield power over you: sell less? That would be at least as harmful to the salesperson as it would be to you. Sell more? “Do what I say I or I’ll make more money for you” isn’t much of a threat.

No, the nature of a law firm salesperson’s power is entirely one-dimensional, and it is this: the power to leave. “Do what I say or I’ll take away all the client business I’ve been giving you and give it to another firm instead.” That is the threat, sometimes explicit but mostly implicit, hovering behind the law firm salesperson’s power.

At many firms, this threat is considered to be quasi-existential: a salesperson who controls a significant amount of business generation for the firm could badly damage or even kill the firm if he ever left, so we’d better let him do whatever he wants. That is the source of power in a law firm: the threat to leave the law firm and take away its lifeblood.

Now, you know what’s interesting about this power? It can only be exercised once.

A salesperson’s threat to leave a law firm is a nuclear option, and once it’s deployed, then there’s no turning back: either he goes, and the power is used up, and everyone else is left to carry on as best they can — or he stays, and the threat is forever extinguished, because it turns out he was bluffing, and his power dissipates. Everyone else in the firm fears the salesperson’s power to leave — but what they don’t fully appreciate is that this is a non-renewable power source.

If you’re a top salesperson in a law firm, the nature of your power is not “Use it or lose it.” It’s “Use it and lose it.” Once you exercise this power inside the firm, then it’s gone — because whether you stay or whether you go, everyone in the firm knows you no longer have any power over them.

What if the other members of a law firm no longer feared the rainmaker? What if, instead of folding when the salesperson raises high, they called and demanded to see what was in his hand?

One of two things is going to happen. The first is that the salesperson will leave. Or at least, he’ll try to leave: he’ll put the word out among rival firms (if he hasn’t already), see whether any landing spots are amenable to him, try to negotiate the best free-agent deal he can get, and walk out the door, along with any other personnel he can coax and as much business as he can stuff into his briefcase.

And how much business will he actually walk out with? Acritas recently surveyed a wide range of partners who had laterally moved from one firm to another. Those partners had expected that about 70% of their client business would move with them to their new firm. You know what percentage of business actually moved? Exactly 27%.

When a salesperson leaves a law firm, according to Acritas, what typically happens is that almost three-quarters of the client business that they supposedly “controlled” decides to stay with the original firm. And what I’ve seen and heard is that in firms where a major salesperson has left, the firm’s junior partners frequently move up into the departed partner’s space, and the firm no longer feels like it’s being held hostage by one of its partners. I’m not saying, to be clear, that this will be the happy result every time. But more often than not, the threat of a departing salesperson turns out not to be existential after all.

And that’s what happens if the salesperson goes. If he or she stays, then the bluff has been called, and this person won’t be able to exercise that power again to the same degree.

3. The Reality of Law Firm Power

Here’s what I think: the conventional wisdom about power in law firms is wrong. The people who everyone believes have all the power can’t afford to use it — because once they do, either they’re gone, or it’s gone — and in both cases, they no longer wield power within that firm.

This shouldn’t actually be surprising to us. Real power in a business or organization has never been the power to threaten or take away or destroy — it’s the power to act, to build, to accomplish. Rainmakers’ power, salespeople’s power, is of the first type — the power of the bully, the bluffer, the threatener.

It’s getting kinda hectic.

You, right now, in your law firm, have it in you to assert power of the second type. I think that real power in a law firm is basically lying around waiting for someone to use it. Like the sword in the stone, it belongs to anyone who’s willing to grasp it and try to wield it. Real power in a law firm belongs to those individuals who assert that the interests of the firm outweigh the interest of one or two salespeople — and who are willing to stand up to these salespeople and challenge them to use their singular power, and thereby lose it.

Again, I’m not saying there are no risks to challenging a top salesperson and daring them to leave; it would be foolhardy to make this your standard management practice. But the fear of losing a top salesperson keeps most firm leaders and managers from even trying to assert institutional power. You can’t run a business in fear of your own salespeople.

I think power in the average law firm resides with its top salespeople only because everyone else in the firm believes that it does. Once you stop believing that — once you decide that positive power is greater than negative power, and that you can exercise power of the second type through the courageous assertion of the best interests of the firm — then everything about your firm can change.

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.