The UK crucible

North American lawyers have been fretting lately about the effects of this recession and what it means for their future. But the recession is only an amplifier or accelerator of change, not its source, and it doesn’t tell us much about the shape of things to come. If you  really want to know what the future looks like, peer across the Atlantic at the revolution now firmly and irreversibly underway in the United Kingdom. But be prepared before you look — otherwise, you might feel like the valedictorian in Say Anything: “I’ve glimpsed our future. And all I can say is … go back.”

* Last month, the Legal Services Board (the new overall regulator of all UK legal services providers) issued a discussion paper asking for lawyers’ input on what Alternative Business Structures (ABSs) should look like. An ABS allows traditional legal services to be delivered through a vehicle other than the traditional partnership of lawyers — most famously by non-lawyer financing or ownership — and constitutes the keystone change to law firm structure envisioned by the Clementi Report and subsequent Legal Services Act. Responses to the paper are due within two months; ABSs themselves are scheduled to be unleashed in just two years. This excerpt from the paper’s executive summary should make the Board’s mandate and outlook very clear:

For centuries, legislation and professional regulatory rules have tightly restricted the management, ownership and financing of organisations that are permitted to offer legal services. Although the UK’s legal services sector is internationally competitive and highly regarded, these regulatory restrictions have stopped it from realising its full potential. Regulation has limited innovation and competition in the way that legal services are delivered. It has constrained consumer choice and restrained normal market pressures on law practices to deliver their services efficiently and effectively. Regulation has gone beyond what is rightly necessary to protect citizens from the unethical practices of a tiny minority to a framework which has restricted businesses and consumers alike. At the heart of the new regulatory environment for legal services is a process for scaling back these restrictions.

* Earlier this month, the Solicitors Regulation Authority (the lawyer governance body spun off from the Law Society earlier this decade) issued its own complementary consultation paper on ABSs. Here’s a summary posted by leading UK consultant Nick Jarrett-Kerr at Linkedin’s Legal Innovation Group:

“[T]he SRA lists 11 possible models for [ABSs] and asks for comment. They include the current [Legal Disciplinary Practice] model (mainly lawyers, but with some non-lawyer managers), two models of totally externally-owned law firm, the [Multi-Disciplinary Practice], the co-op model (externally owned, providing funeral services, etc., as well as legal), PE investment model, floated company, “hub & spoke” (where a non-licensed hub such as an administration company provides back- and middle-office services to law firms who make up the spoke), the Australian Integrated Legal Holdings model of consolidated ring-fenced firms, not-for-profit firms, and in-house teams.”

* Small-firm and sole-practice lawyers are not taking these developments lightly. The introduction of the ABS model “demonstrates utter contempt for the consumer of legal services,” QualitySolicitors.Com CEO Craig Holt told the BBC. “The solicitor profession faces being all but wiped out by a government seemingly intent on robbing the public of access to good quality, local legal advice.” Mr. Holt’s organization pressed its point at a protest last week outside a UK supermarket chain that, as the current saying goes, could soon be selling legal services along with tins of beans.

* Whatever the merits of their position, lawyers opposed to these changes have legitimate reasons to be anxious. More than 16,000 legal jobs disappeared from the UK in 2008 and 10,000 more are expected to go within the next two years. The prognosis for these unemployed practitioners is ugly: Lawyers who fall out of work have little hope of finding new jobs, with vacancies for associate solicitors down by 95 per cent this year, recruiters said. “It’s the worst year ever, by some margin,” Nick Root, founding partner of Taylor Root, a leading recruitment agency, said. “Those people who are being let go will not get another job.”

And there’s more. Linklaters’ managing partner Simon Davies: “[B]ecause of the changes brought about by the developments of the past year or so, much of that work will never come back – or at least not in the foreseeable future.” Stikeman Elliott’s London managing partner Derek Linfield: “This is like nothing any of us have seen, and no one has any idea how this is going to end up.”

* North Americans might not realize that the recession is hitting the UK and Europe harder than the US and Canada. But the changes to legal practice prompted by the downturn will last well into the recovery. Here are two to get used to. First, the UK government is instituting a reserve auction system for criminal legal aid work that will essentially award legal aid contracts to the lowest bidder in the name of “efficiency,” with predictable effects on the defence bar. Meanwhile, putting a major scare into big firms, gigantic Anglo-Australian mining company Rio Tinto has announced it’s outsourcing large chunks of its legal work to a dozen lawyers with CPA Global in Delhi. Rio aims to cut $100 million from its annual legal budget in the process and free up its internal lawyers for more complex work — and it expects its outside counsel to play along. (More on this in a separate post next week.)

Not everything coming to pass in the UK will migrate to the New World — but a lot of it will, and the changes that do occur are likely to stick. Expect some form of regulatory reform in the US and Canada within the coming decade, law firms forced by regulators or clients to redefine themselves and their business models, more lawyers losing full-time jobs and fewer full-time lawyers hired to replace them, lawyers figuring less and less prominently in the provision of publicly funded legal services, and nastier competition between remaining lawyers for fewer client dollars. Love it, like it, fear it or hate it, but don’t ignore it or pretend it couldn’t happen here — there’s not much here so unique to the UK that it can’t be exported worldwide.

The UK legal profession is entering a trial by fire, a crucible from which it should emerge smaller, leaner, more entrepreneurial by necessity and more captive to the demands of the client marketplace. Take a good look at that crucible, because it’s coming soon to a law practice near you.

Decoupling price from cost in legal services

Virtually all the talk these days in client circles is about the cost of legal services. It’s well established that institutional purchasers of these services are under great pressure to reduce costs by, for example, “taking bids, asking for discounts, shopping around for lower-cost options.” Patrick J. Lamb points out that many in-house lawyers don’t care what rates are charged, so long as they can bring back to corporate HQ the trophy of a 10% discount. One of the most popular discussions at Legal OnRamp right now is under the heading “Top Ten Ways for Clients to Save $” — and the list has grown well beyond ten.

What’s interesting is that most conversations about “reducing costs” are one-dimensional. They focus on the client getting the same kinds of services from the same kinds of law firms at a lower price; or, more concisely, the same-old same-old for less. They don’t envision rethinking the source of the services, or more importantly, the ways in which those services are produced. Ron Friedmann points out that when looking at ways to control costs, in-house counsel tend to focus on pricing elements — rate freezes, flat fees, discounts, alternative fees, and so forth — while ignoring the potential savings of reforming the process by which legal services are provided:

Where, for example, are efforts to require matter budgets, application of best practices, automation, risk analysis with decision trees, document assembly, and proper use of KM systems?… Real costs savings mean changing the process, focusing on how lawyers practice. The profession needs to overcome its “I am an artiste” attitude and develop better ways of working.

Both lawyers and clients have succumbed to the long-standing lawyer assumption that the price of legal services is directly connected to its cost. Lawyers produce work today pretty much the same way they produced it 60 years ago: through the individual-focused, time-insensitive application of principles and formulas to fact situations. Some time back, they figured out how much it costs them to do that, built in a percentage for profit, and arrived at a selling price for clients. And every year or so, to reflect both inflation and inflated earning expectations, they raised those prices. It’s an insulated, self-sustaining system in which price = cost + profit margin.

Here’s the really important thing that’s happening right now: the price of legal services is finally becoming uncoupled from the costs lawyers incur to produce it. Continue Reading

Core competence: 6 new skills now required of lawyers

Up till now, the necessary and sufficient skill set for lawyers has looked something like this (in alphabetical order):

  • Analytical ability
  • Attention to detail
  • Logical reasoning
  • Persuasiveness
  • Sound judgment
  • Writing ability (okay, that one’s apparently optional for some)

This list doesn’t include such characteristics as knowledge of the law, courtroom presence, or integrity — these aren’t “skills,” per se, so much as information one acquires or basic elements of one’s character. Even innovation, which I prize so highly, is first and foremost an attitude and willingness to think and act differently.

Rather, I’m concerned here with actual skill: a ready proficiency or applied ability acquired and developed through training and experience. Your degree of character, diligence and intelligence are innate characteristics; skills are what you acquire through their application. If you possessed these six skills in sufficient abundance, you were fully qualified to practise law.

Well, not anymore. From this point onwards, while these skills remain necessary, they’re no longer sufficient: they constitute only half of the set necessary to practise law competently, effectively and competitively. Here’s the new six-pack, the other half of tomorrow’s — no, today’s — minimum skills kit for lawyers (again in alphabetical order). Continue Reading

Life after lawyers

We need to start thinking about what the post-lawyer justice system is going to look like.

I can see how this might be an absurd or even heretical notion to some people. But there’s reason to believe that lawyers won’t be an essential part of the legal system in the future — and if so, our profession has to come to grips with what would mean, for us and for society generally.

I’m thinking about this because we’re preparing our cover story for National’s June issue, on the problems faced by family courts across Canada (and quite likely, in other jurisdictions) caused by self-represented litigants. if you’ve been inside one of these courts lately, you know what these problems are: backlogged dockets, mistreated witnesses, judges obliged to act as de facto counsel, wasted court time — and paying clients in the middle of it, wondering why they bothered to hire a lawyer since their spouse is doing nicely without one.

But here’s the problem: it’s been like this for more than a decade. We wrote about the pro se crisis in an October 1999 cover story titled “Who needs a lawyer?” (Sorry, no link — this was the Pleistocene Era, Net-wise.) And at a certain point, crisis becomes commonplace: we simply adjust to it. I think we’re perilously close to that stage in family law right now — people are getting used to the idea that family justice is a lawyer-optional event.

I’m coming to think that family law is the canary in the coal mine. Every day, more things that used to be the exclusive bailiwick of lawyers are automated, down-marketed and commoditized by non-lawyers. You already know this if your practice involves transactional matters like wills and real estate. But the pro se trend in family court shows that litigators aren’t immune either — as if the rise of mediation didn’t make that clear years ago.

We still talk about how we can “fix the problem” of people going without legal representation. But there are two big elephants in the room that few lawyers seem interested in talking about. The first is that the cost of retaining our services makes us largely inaccessible to all but the rich and the very poor, and that as long as we operate in a rarefied, self-regulated, protected marketplace, those costs are not going to fall.

The second is that a family court system with fewer lawyers and more self-represented parties is, no question, slow, inefficient, lopsided and chaotic. But you know what? It still works. Courtrooms still open their doors every morning, support is still mandated, and custody is still awarded — with or without lawyers’ involvement. We should be extremely nervous about the message that’s sending to the general population about just how indispensable we really are.

Lawyers are now a luxury good, but we increasingly deal in commoditized services. If you want to know where that disconnect leads, drop by your local family court sometime.

Something’s actually happening

There’s a lot of buzz building about an article in today’s New York Times with the rather odd title “Who’s Cuddly Now? Law Firms.” It summarizes a recent rash of new business models in American law firms, from flextime for lawyers to flat-fee bills for clients to alternative billable-hour schemes and more. It’s the second article the Times has run recently about lawyers seeking satisfaction, and it prompted its rivals at the WSJ’s Law Blog to ask: is there really something happening here?

The WSJ blog’s readers are providing their usual snarky responses: “This new ‘movement’ will dovetail nicely into the massive layoffs that will be coming in the coming months,” says one. “So, you want more time with your family or to pursue your passion for flamenco guitar? Here is 3 months severance.” Nice. So, here’s my answer to the blog’s question: yes. As Judith shouted at Reg in The Life of Brian, “Something’s actually happening!”

I can refer to you any number of articles and links about law firms that are making changes to the way they manage their employees and their work — see the Financial Times‘ law firm innovation report and the Innovaction Awards, for starters. In addition to the firms identified in the Times article, there are others making changes to how they operate in terms of compensation, of partnership, of billable hours, of women in law firms, and even of the entire firm itself. And these are just a few of the ones we hear about — other changes are occurring, quietly and beneath the radar, in areas such as recruitment, retention, training, parental leave, and evaluation.

Law firms are under pressure. They’ve gotten used to a comfortable world where they could set the tone and pace of operations. That comfort zone is evaporating from two directions: externally from clients and internally from lawyers. Clients really are more sophisticated and more demanding, and they’re looking for more than their firms have traditionally been willing to give them. And lawyers really are more inclined to walk away from (or try to change) work conditions that don’t satisfy a wide range of personal needs.

But even that’s not really new — both clients and lawyers are longstanding complainers, and pressure has been brought before, which law firms have ignored. And keep in mind that many, many law firms are continuing to ignore these pressures. What’s really new this time, I think, is not just that law firms are changing the way they do business, but why. I think they’re doing it, voluntarily, to gain a competitive advantage. Continue Reading

What clients want

What do lawyers sell? To this day, you’ll hear a lot of lawyers say, “The only thing I have to sell is my time.” That’s the wrong answer, not only because it encourages our unhealthy fixation on hourly billing, but also because most clients prefer to pay for as little of our time as possible.

It’s also wrong to say that “lawyers sell knowledge.” We used to make a living at that, because we were virtually the only ones who had access to legal knowledge, and scarcity produces demand. We knew what there was to know and could solve the problems people pay to have solved.

But the Internet has helped make basic legal knowledge ubiquitous, non-lawyer competitors have turned intermediate legal knowledge into marketable assets, and as our cover story on information overload makes clear, advanced legal knowledge — “knowing what there is to know” — is becoming a practical impossibility. Legal knowledge, per se, is an increasingly shaky foundation upon which to build a competitive business.

So what can lawyers sell? Well, in the past few months, I’ve come across three firms (two Australian, one American) that have created online compliance and training programs for corporate clients. Employees log in and complete a series of lawyer-designed training modules that explain the legal and regulatory obligations in a given area, from employment law to corporate governance to privacy issues.

In the result, the client upgrades its employees’ competence, reduces its risk exposure, and can respond with detailed records to outside audits and reviews. The law firm earns a fee for the service while cementing its relationship with the client, and its lawyers spend their time on other value-building work rather than fielding phone inquiries or helping put out fires caused by poorly trained employees.

Doesn’t this mean the firm is billing fewer hours to the client? Why is the firm investing so much time and money in a project that will make clients rely less on lawyers? Ask these firms, and they’ll tell you: “It’s what the clients want. It allows them to meet their business needs.”

And that’s what lawyers must now sell: client empowerment. We must help clients, individual and organizational, to take greater responsibility for their legal lives — to develop “good legal habits” that prevent problems from developing. Doctors don’t just cure patients; they help them develop regimes to stay healthy in the first place. Why should lawyers be different?

Clients are ready to take more responsibility in their encounters with the law. Help them do that, and you’ll never want for work.
This post first appeared as the editorial in the October/November 2007 issue of National magazine.

Going to town

There’s been a lot of discussion lately about the numerous factors leading to the continuing contraction of the legal profession in smaller urban centers and in rural outposts. Here’s another one: competition for legal talent. Large-center practice is operating at unprecedented levels of profitability these days; even if small-center practices were still reasonably feasible, large-center practices are now so lucrative that it’s hard for any but the most diehard devotees of small-town life to pass up the opportunities in urban Canada.

The law societies of British Columbia and Ontario have produced reports on this subject, and both identify it as a serious matter for the profession. I’m not entirely sure that it is, for a couple of reasons.

First, that belief presumes that a shortage or absence of lawyers in small centers results in reduced access to justice in those locations. Lawyers have long believed that only they can really provide legal services competently, even as the alternative legal services market (primarily paralegals, but also including title insurers and do-it-yourself will CDs) continues to flourish every year. It would hardly behoove the LSUC, for instance, to maintain that lawyers are a sine qua non for access to justice when the LSUC itself has battled successfully to gain the right to regulate paralegals.

Before we decide that only lawyers’ services pass the threshold of providing access to justice, maybe we ought to let someone else try. If lawyers really want to ensure the best possible world for access to justice, they should help throw open the legal-services marketplace to as many competitors as the market will allow, and let clients sort the wheat from the chaff. Perhaps needless to say, I don’t think that’s going to happen. Continue Reading

Law practice in the 21st century

This article was first posted at Slaw on September 29th, 2006.

Earlier this month, I visited San Francisco for the first time. I’d long been fascinated by the thought of a city built on a geological time bomb, and walking its streets was quite an experience.

Everyone knows there’ll be a massive seismic rupture underneath the city someday. But San Franciscans are neither hot nor bothered by it; they go about their lives in their historic city. Their chances of being engulfed in an earthquake remain extraordinarily small, and there’s nothing they can do to prevent it anyway, so why worry?

I think you could draw a few parallels between San Francisco and the legal profession. Great forces are in motion, seismic change is in the offing, and while prosperity reigns today, ripping upheaval is inevitable. I don’t pretend for a moment that lawyers are threatened with annihilation – so long as there’s law, there’ll be lawyers – but after the strike comes, we’ll have trouble recognizing the landscape. Continue Reading

21st-century legal innovation

This article was first posted at Slaw on September 25, 2006.

I had the great fortune to attend the annual meeting of the College of Law Practice Management in San Francisco earlier this month. The topic of the day was at the heart of 21st-century lawyering: innovation. Specifically, why lawyers aren’t very good at it.

One of the delegates made an important distinction at the start. When it comes to actual legal work, lawyers can innovate like crazy. Corporate lawyers have designed some of the most innovative (and profitable) financial instruments around; litigators are always finding new angles from which to argue cases, and so on. Where we have trouble innovating is in our two main professional mechanisms: practice management and client relations.

I’ll leave the first one alone — that’s a whole other steamship of fish — and go after the second: how lawyers relate to their clients and deliver services to them. It’s pretty apparent that lawyers’ relationships with clients could use, shall we say, a little sprucing up. Continue Reading

Rage against the machine

You’re surely familiar with those lists of famously bad technology predictions that make the rounds by e-mail every so often. One of the most commonly cited is Digital Equipment Chairman Ken Olsen’s 1977 observation: “There is no reason anyone would want a computer in their home.”

Amusing, sure, but rarely quoted in the proper context. Olsen was talking about the undesirability of household super-computers that would control every aspect of our lives. He was fully aware of the desktop PC and its potential as a powerful business tool; his point was that there are certain aspects of our lives that no rational person would want to delegate to a machine.

So when you hear someone say, “Computers will never be able to replace lawyers,” consider what that might mean. Could a computer someday stand and cross-examine witnesses in court? Could it deliver wise counsel to a CEO preparing for a takeover bid or a spouse preparing for a custody battle? Could it form a trusted advisor relationship with a family business over 20 years of service?

Probably not. But how many lawyers are doing that now?

Here’s what many lawyers are doing today: they’re guiding testators through wills, assisting on house purchases, and filing complicated forms for everyone from immigrants coming to Canada to companies going public. They’re answering client questions by applying established legal rules to fact situations and predicting likely outcomes. They’re resolving disputes by finding appropriate financial settlement points between parties.

In short, they’re facilitating transactions — and in the 21st century, transaction facilitation is machine work. Just ask your instant teller, or your e-mail server, or Amazon.ca — or the secretary you haven’t needed since Windows 95 came out. Raise your hand if you see something in that previous paragraph that a sophisticated software program simply can’t do — and be assured, software has become extraordinarily sophisticated.

The threat to our profession isn’t from computers replicating what lawyers can do. The threat is from lawyers replicating what computers can do.

When we apply specialized knowledge from legal databases, use logical analysis skills to answer a question, or escort a client step-by-step through a complex process, we are on computers’ turf. When we display sincere empathy, use real wisdom and intuition, and connect with our clients as people, then computers can’t touch us.

For the moment, anyway.

This post originally appeared as the editorial in the October 2006 issue of National magazine.