What disruption really means

You keep using that word,” said Inigo Montoya. “I don’t think it means what you think it means.”

“That word,” in the current legal marketplace, is “disruption,” a terrific word that’s instrumental in understanding what this market is going through, but one whose overuse is generating a growing backlash. The tipping point might have been the ReInvent Law Silicon Valley conference, or it might have been the wave of updates from ABA TECHSHOW that seemed to feature “disruption” every few tweets. Any buzzword, if adopted too widely and too quickly, risks burning out its meaning simply because people get tired of hearing it all the time, and “disruption” is at risk of that outcome right now. Sam Glover at Lawyerist put the sentiment best in a post last week:

Here’s the thing: disruptive innovation is not coming to the law. At least, not quickly. …

LegalZoom and Rocket Lawyer are not disruptive innovation, either. They are basically just selling forms and pre-paid legal services, which have been around forever, in one form or another. People who think this is disrupting the legal industry do not have a very good grasp of the legal industry. Customers of LegalZoom and Rocket Lawyer were never your potential clients. They may have been Office Max’s, or Hyatt Legal‘s, but they were never yours.

So far, the only disruption to the practice of law has happened around the edges. Sure, Rocket Lawyer and LegalZoom may have siphoned off a few clients. And predictive coding will put some contract lawyers out of their jobs (although doc review is only “legal work” due to a technicality), but can anyone point to an imminent threat of disruption to the legal market? I don’t think so.

So who is actually threatening the legal market for lawyers representing clients? I’m not sure. In fact, I’m not sure anything is going to.

I’m in qualified agreement with Sam on this, as I responded in a comment on his post that I’m expanding upon here. What I really want to do is help establish some specific parameters around the use of “disruption” in the context of the current legal market. I summoned Inigo Montoya to this discussion because I don’t think “disruption” is the empty vessel its critics believe it to be. Disruption is real, and it’s a contributing factor to change and upheaval in the legal market; but not every change or upheaval is an example of “disruption.”

When we talk about disruptive innovation, then we’re squarely in Clayton Christensen’s territory, because he gave us the idea of “sustaining technology” vs. “disruptive technology” in The Innovator’s Dilemma. Sustaining innovations (we can safely substitute “innovation” for present purposes) provide improved delivery or performance of an established product or service, “along the dimensions of performance that mainstream customers in major markets have historically valued,” in Christensen’s words.

Most innovations are sustaining, and while incumbents might struggle with them a little at first, they can and usually do handle and implement them. Sustaining innovations in law firms include email (a more efficient communication medium than letters or faxes) and time-and-billing software (a more efficient docketing methodology than making hand-written entries on timesheets).

Under this definition, LegalZoom and Rocket Lawyer are actually sustaining innovations: they are providing a more efficient and accessible method of acquiring legal documentation. Any law firm in the world could do what these companies are doing right now — offering legal documents over the internet — without having to completely re-engineer their operations. (That they’re not bothering to do so says more about lawyer intransigence and biases about “low-value” products than about these companies’ offerings). Incumbents eventually find an answer to sustaining innovations: they can adjust to them without tearing apart their basic structure in the process.

Disruptive innovations are different: in Christensen’s words, “they bring to the market a very different value proposition than had been available previously.” Disruptive innovations normally offer worse, not better, performance or quality than the incumbents when they first arrive. But they arrive at a time when the market is ready for something smaller, cheaper, easier, or more convenient than what’s already out there. They almost always start out at the lowest level of the market, or even tap into markets that have previously been invisible. Most importantly, they offer something that the incumbents can’t replicate, even if they wanted to, because the attempt to replicate would require such a radical reconfiguration of the incumbent’s business and production model as to cause it to be fundamentally undermined.

Neota Logic, to take an example, is disruptive technology: it guides users through an automated process of data gathering and analysis, based on a powerful legal KM engine, and produces an answer to a legal, regulatory or compliance question. Neota cannot replace a lawyer — yet. But it is going to displace lawyers, to start taking on some of what lawyers now do. What Neota wants to do is provide a way in which legal questions can be answered more efficiently and cost-effectively than the standard law firm model allows. It is being picked up first at the market’s edges — law students, in this case, in Georgetown Law’s Iron Lawyer competition, are using Neota to create apps that can address legal needs for people who don’t want to or can’t use lawyers. Disruptive innovations never start at the top. They start at the bottom and work their way up.

Here’s what’s important: The vast majority of law firms cannot replicate this type of innovation, because it would essentially destroy their businesses. This is because law firms are not in the business of solving legal problems; they are in the business of billing hours devoted to solving legal problems. That’s a key distinction. Law firms don’t really sell legal solutions — if they did, they’d price everything on a flat fee or as a percentage of the value of the solution. They sell hours, and if you’re in any doubt about this, pick up a law firm invoice and see what’s actually being charged out. Neota, however, is in the business of solving problems, quickly and efficiently. These are two quite different production models.

A law firm that integrated this kind of disruptive program into its operations, and contributed to the ongoing expansion of its capabilities, would soon find itself cutting loose many of its associates, because they would no longer be necessary: the computer would be performing tasks they previously undertook. In most business models, this would create greater efficiency and drive profits up; but in law firms, reliant upon leverage for profit, creating greater efficiency drives profits down. If you make money by selling inventory, and if your inventory is billed hours, reducing your inventory is going to kill your revenue stream.

This returns us to the original question: can law firms employ disruptive innovation? If we use the strict definition we discussed above, then the answer is no. Disruptive innovations start at the bottom of the market and introduce offerings that are inferior in quality, but that engage the market on new criteria such as price, portability or accessibility. Law firms, by their nature as incumbents, are bound to be the high-quality disruptees, not the low-quality disruptors. They’re destined to be the ones from whom market share will be taken, as the disruptors get traction in the new market and move steadily up the food chain.

If we’re true to Christensen’s definitions, in fact, then almost the only true disruptors among law firms are the likes of Berwin Leighton Paisner’s Lawyers On Demand and Pinsent Mason’s Vario, contract lawyer agencies that run parallel to the incumbent firms and essentially compete with them for the attention and affection of clients. Christensen taught that companies seeking to “disrupt themselves” cannot do it within the incumbent enterprise: the cultural inertia will be impossible to overcome. The disruptive forces must be housed in a separate location and allowed to chart their own course. Extremely few law firms have the intestinal fortitude to take those steps, not least because of the possibility that the parallel disruptor might actually succeed.

All that said, I do think it’s possible for law firms to introduce changes and innovations within their own operations that qualify as at least quasi-disruptive to their status quo. For an excellent example, consider the two winners of last year’s InnovAction Awards, handed out by the College of Law Practice Management: Littler Mendelson’s CaseSmart knowledge management system and the firm-wide implementation of Lean Six Sigma at Seyfarth Shaw.

In both cases, these firms ripped out their internal machinery, rewired and re-engineered the way they did things, and ended up with better procedures and more efficient systems that delivered improved results for clients and increased revenue for the firm. It wasn’t easy and it wasn’t overnight, but these firms recognized an opportunity to work differently in ways that mattered to clients. They no longer work the same way they did before, and that’s as close to pure disruption as you can ask from market leaders in a conservative industry like law. We should welcome and encourage these innovations, while recognizing that they don’t quite strictly qualify as “disruptive innovations” for the legal market as a whole.

The thing about truly disruptive innovations is that you can’t forecast them. Show me any futurologist who, when we were all making millennial predictions back in 1999, predicted the smartphone. All you can do is watch the market and identify the disruptors when they appear. If you want to know what they look like, ask yourself:

  • Does this innovation deliver a decrease in quality, rather than an improvement?
  • Does it interact with the bottom or periphery of the market, rather than the top?
  • And if a law firm tried this, would it drive itself to the brink of breakdown, having to partly or even completely reconfigure its financial, procedural and cultural infrastructure?

If the answers to these three questions are yes, then what you’ve got there is a disruption. If not, then, as Inigo advises, it might be best to stop using that word.

Jordan Furlong delivers dynamic and thought-provoking presentations to law firms and legal organizations throughout North America on how to survive and profit from the extraordinary changes underway in the legal services marketplace. He is a partner with Edge International and a senior consultant with Stem Legal Web Enterprises.          

 

The evolution of the legal services market: Stage 5

In the four previous entries in this series, I’ve sketched out what I see as the decline and subsequent rise of the legal profession over the next 10-15 years as a direct effect of rapid evolution in the legal market.

My fundamental premise throughout these posts has been that the emergence of new competitors and new technology, along with regulatory reform, will deprive lawyers of many of the low- to medium-value tasks they perform today, but that this change will also expand and reconfigure the overall market for legal services in ways that eventually drive a resurgence in lawyer employment and the more valuable applications of our skills. This will be a roller-coaster ride, not just for lawyers but for all the industries, organizations and suppliers that grew up around our profession during its 20th-century heyday.

Today’s final entry is kind of a postscript to Stage 4, and maybe something of a thought experiment too. I’d like the legal profession to start thinking more creatively and laterally about exactly what lawyers could be in the future.

Stage Five: The Multi-Dimensional Market

Lawyers, contrary to popular belief, are highly creative and innovative — but only on behalf of our clients. When we turn the focus on ourselves and our own profession, we seem to lose our creativity and ambition — we narrow our vision, think small, and cling to “what we’ve always done.” Almost all the discussion of lawyers’ economic prospects (and there’s plenty in the news every day) proceeds on the assumption that lawyers only perform a limited number of strictly defined functions, a slim portfolio of roles that has hardly changed at all for decades.

We cast our careers in linear terms, and we only see change of the negative kind — work that we lose to others. We don’t think about work that we could take from others, or work that we could create altogether new. We don’t give ourselves enough credit for what we could be and what we could do.

Recall what happened to accountants when the first wave of technological advancements in the 1970s and 1980s rendered many of their traditional balance-sheet offerings obsolete. They were faced with a stark choice: evolve upwards and outwards, or fade away into history. They chose to evolve, reinventing themselves as business advisors, market analysts and process consultants — tasks for which they were certainly not educated and for which they could claim no special pedigree. They reached for this work because (a) they needed it, (b) nobody else was doing it, and (c) their core skills and competencies qualified them to at least try it. And they succeeded, in no small part because they thought they could.

A simular choice is at hand for lawyers: move up the value ladder, or climb off it altogether. Many lawyers today make a living off the legal equivalent of  accountants’ “balance-sheet” work; that work, as I hope this week’s series has persuasively argued, is going away. What will replace it? Where will we find new engagements of similar or greater value?

Answering those questions is a two-stage process. The first stage is the hardest: it involves screwing up our courage, building up our confidence, and letting our imaginations roam over the possibilities of 21st-century lawyering. It requires lateral thinking and creative brainstorming, anchored by a clear-eyed assessment of both our own strengths as professionals and the evolving needs of a globalized society. Once we’ve done that, once we’ve cleared that enormous (for us) hurdle, then the second stage is not only easy — it’s almost fun. What could we do? What might we be? There’s a vast, uncharted and unclaimed territory out there — what could we build on that new landscape?

Stage 5 of the evolution of the legal market is the only one in which lawyers are the ones bringing the change. In all four previous stages, we’ve either been helpless bystanders or market responders; in this era, we get to make the first moves. This era might very well overlap with Stage 4, and it’s possible we could see some early examples even in Stage 3 — but it’s all up to us.

Stage 5, if and when it happens, is when lawyers reinvent themselves. We evolve beyond our long-standing self-identification as document approvers, transaction facilitators, and dispute resolution shepherds. We saw our traditional inventory taken away by competitors, so we seek out new functions, new social and business purposes.

This process begins when we return to our roots. Lawyers will ask, of themselves and each other: Why do people turn to us?  What do we bring to the table? With which traits and skills are we associated, and for which of these are we most valued? What do we offer that matters in an interconnected, unstable, and hopelessly complicated world? Here are some of the answers we’ll come up with:

  • Accuracy
  • Analysis
  • Authority
  • Calmness
  • Communication
  • Connectivity
  • Creativity
  • Drawing Distinctions
  • Facilitation
  • Fairness
  • Honesty
  • Independence
  • Logical Reasoning
  • Order
  • Pattern Recognition
  • Persuasion
  • Representation
  • Rigour
  • Rules
  • Solutions

When we finish assembling this list and test-driving it with our clients, we then ask: to what new roles and positions could these characteristics and values lend themselves? We know what we used to do in the past; what might we do in the future? Here are some possible answers.

  • “Amazon.Law” Provider: Sharp, focused, legally trained mind sifting through and analyzing clients’ vast storehouses of data to anticipate legal needs they don’t even realize they have.
  • Civics Trainer: Roving instructor retained to inculcate the rule of law, rights and responsibilities, and other fundamental legal principles to students, employees and citizens.
  • Competitive Analyst: Provider of sophisticated business intelligence operations, infused with deep knowledge of laws and regulations and employing rigorous organizational analytics.
  • Freelance Fact-Checker: Trusted independent authority retained by governments, media and organizations to reliably separate fact from fiction in a truth-challenged society.
  • Judicial Subcontractor: Dispute resolution expert deputized by judges to go out and “bring courts to the community,” increasing access to justice and clearing court backlogs.
  • Mobile Arbiter: Conflict resolution facilitator called in to troubleshoot everyday disputes at homes or in the workplace before they become full-blown fights: “preventive ADR” on a moment’s notice.
  • Social Connector: Using deep networks that range across business, government and private individuals, connecting people, organizations, ideas and initiatives that will complement each other, solve problems, and create opportunities.

These seven possible legal careers of the future complement seven that I suggested in a post earlier this year. You can come up with more, if you open your mind to the possibilities on offer.

Where do you start? Go ask your best clients what they think — but don’t ask them about “lawyer of the future” jobs, because they won’t be able to tell you. Henry Ford famously said that if he’d asked his customers what they wanted, they’d have told him “faster horses.” Instead, ask your clients: what do you value about me, and about lawyers generally? What do we have that inspires your confidence and fulfills your hopes? What needs do you have, even subconsciously, that no one has offered to meet? If you had all the time and money and information you needed, what would you set out to create? Help them envision their own future, and then find ways to get them there.

The near-term and mid-term future of the legal profession will be largely dictated by external forces. But throughout that process, and especially as we draw towards the end of that period of upheaval, we will gain growing amounts of control — not just over our own destiny, but also over the future course of the entire legal market and of the whole definition of what we mean by “legal” and “lawyer.” Stage 5 will mark the end of the legal market’s evolution — but for the legal profession’s own evolution, it will be just the beginning.

Jordan Furlong delivers dynamic and thought-provoking presentations to law firms and legal organizations throughout North America on how to survive and profit from the extraordinary changes underway in the legal services marketplace. He is a partner with Edge International and a senior consultant with Stem Legal Web Enterprises.

The evolution of the legal services market: Stage 4

This series hasn’t exactly been a joyride so far, has it? Following the complacent satisfaction of Stage 1, the legal profession is not currently enjoying Stage 2 and will be even less fond of what Stage 3 is likely to inflict. You can be forgiven if this feels like a movie you’d like to leave halfway through. But while this might seem to be a depressing tale of lawyers’ relentless decline and eventual extinction, that’s not the actual story.

Lawyers, we need to keep in mind, really matter. We serve critical functions in society: we provide dispassionate representation and advocacy in dispute resolution; we facilitate countless significant social and business transactions; and we’re capable of providing tremendous and unique value to clients of all stripes — value that commands a premium price. Law, along with medicine and ministry, are the three original professions: the highly esteemed servants of the community and the building blocks of a meaningful and civilized society. No one is going to outsource or automate a way around that.

It’s my belief that, as a profession, we’ve lost sight of these facts. We’ve been distracted by the easy money to be made through providing essentially clerical tasks and conducting low- or middling-value transactions — tasks that we took on simply because the market lacked other providers whose skills and sophistication were better aligned with this kind of work. Our monopoly on the legal market narrowed our vision, fogged up our priorities, and misdirected our talents. We became myopic and even selfish, believing that we were entitled to exclusive access to any work that was law-related.

I think that lawyers in the future will, in a strange way, come to appreciate that the disruptive forces currently sowing chaos in our lives actually did us a favour. By taking away work that doesn’t require our expertise, they’ll prevent us from punching below our weight and force us to go pick on challenges our own size. Not only that, but by breaking through the pricing floor and lowering the financial threshold for consumer access to the law, they’ll do something lawyers have never been able to do: they’re going to grow the legal market.

By the time Stage 4 comes about — and I believe parts of it could start emerging during Phase 3 — lawyers will be surprised and delighted to see a much larger and more dynamic market emerge. And in those circumstances, we won’t really mind having more people digging into what will have become a much bigger pie.

Stage Four: The Expanding Market

Features:

(a) The Market:

  • Combination of multiple providers and affordable prices opens up huge, previously latent legal market.
  • Innovation in legal services, driven now by both lawyer and non-lawyer providers, greatly increases range and depth of accessible legal work.
  • Market expansion accelerates rapidly; legal job growth returns, demand for lawyers increases (although not often in traditional roles).
  • Systems and IT advances achieve unprecedented levels of accuracy and efficiency in basic legal documents and processes.
  • Routine and straightforward legal work is subject to fierce competition by warring national and global franchises, including legal publishers, accounting firms, software companies, and even a few “white label” law firms.
  • Commoditization of legal product is widespread; industry norms and standards are established for basic products and services.
  • Concept of “legal insurance” becomes more commonplace, often as part of homeowners’ policies or corporate benefits, creating more legal opportunities.
  • A new legal service ecosystem grows up, one in which individual lawyers and non-lawyers temporarily collaborate on projects under the direction of senior project-managing counsel.
  • Civil court system is transformed into smaller but more prestigious entity, with lawyers and judges handling complex, high-stakes, or socially significant civil disputes; parallel “private” courts and ODR providers oversee adjudication and resolution of other civil matters.

(b) Lawyers:

  • Elite law firms, from solos to global giants, thrive by handling high-quality, highly remunerative, mission-critical work: they are strategists, counsellors, and trusted advisors to individuals, businesses and institutions.
  • “Preventive law” emerges as a viable legal career: managing risk and avoiding legal troubles for corporate and consumer clients on a monthly retainer.
  • Lawyers become increasingly integrated within diverse corporate and social enterprises; higher evolution of “in-house” lawyers.
  • Just three types of “outside counsel” dominate the private bar: mobile virtual solo, boutique specialist, and global corporate problem-solver and value-provider.
  • New lawyer organizations evolve, replacing the associations of the past, using online platforms to create fluid, collaborative, job-sharing, skill-building networks.
  • Legal education is transformed by emergence of “specialist” law programs focusing on specific industries and “bridge” providers linking formal education with practical training. Online legal education becomes ubiquitous.
  • A few elite lawyers continue to bill by the hour, the last holdouts in a market where pricing is almost entirely predictable, cost-aligned, value-based and market-driven.

Era: 2019-?

Every period of creative destruction comes to an end; every process of renewal eventually completes itself. After many difficult years of contraction and frustration, lawyers finally see a change in their fortunes.

By Stage 4, the ongoing process of competition and innovation has greatly reduced the internal cost and external price of many legal products and services. Lawyers who had been bemoaning this trend are happily introduced to the economic principle that lower prices expand markets. More people and businesses can now afford more legal services than they could before: the latent legal market is finally cracked. Moreover, thanks to the attrition of the past few brutal years, the number of lawyers in the profession is much reduced, setting up a new supply-and-demand dynamic.

Only a handful of companies worldwide now provide legal knowledge, documents and processes, and like the Amazons and FedExes and Wal-Marts of the past, they rely on extreme efficiency, standardized production, cutthroat pricing and just-in-time delivery to compete for market share. No 20th-century law firm could survive in this market, and few 21st-century lawyers want to do this work anyway. They have other, better pursuits.

This is where lawyers see their resurgence. As Clayton Christensen points out, efficiency innovations destroy jobs, whereas truly disruptive innovations create jobs. Stages 2 and 3 gave us “efficiency innovations” in law, at the cost of many lawyer positions; but Stages 3 and 4 usher in the “disruptive innovation” era, during which lawyer employment opportunities return, stronger than before. Preventive law — Richard Susskind’s famous “fence at the top of a cliff, rather than an ambulance at the bottom” — is an excellent illustration of this trend: proactive lawyering that manages risk and reduces problems discovers its market value.

High-level, highly demanding and highly compensated legal work experiences a renaissance in this era. The world has gotten no simpler in the last 10 years — in many ways, it has become far more complex and confusing. Anonymity and relativism undermine social and business bonds, technology and big data create powerful and frightening new social forces, shades of grey are everywhere in public and private life. The authority, clarity and precision of lawyers now become a necessary and valuable presence in the market. Freed from our previous dependence on paper and product, we return to our higher purpose and our more valuable business and social roles.

The industries and specialties that grew up around the old legal profession undergo similar transformations in Stage 4. Lawyer associations survive by becoming lighter, quicker, more businesslike and more aspirational, representing lawyers’ newly redefined interests and repositioning themselves as networkers, connecters, trainers, R&D providers and thought leaders. Legal education is still uneasily re-engineering itself, but a new balance is emerging between educators focused on classical jurisprudence and legal philosophy and trainers focused on professionalism, ethics and business acumen for both initial and continuing professional development. Legal publishers have become legal software developers and knowledge management engineers.  Everyone has had the opportunity either to raise their game or leave the playing field altogether.

A word about litigation. I gave a presentation earlier this year to Canada’s chief judges and chief justices, wherein I advised that their traditional role as private dispute adjudicators was at risk. The soaring costs of court litigation, in terms of both time and money, had placed it out of most people’s reach and had encouraged the development of less formal but more accessible dispute resolution providers. I expect that the majority of disputes currently pushed through the court system will eventually be privately resolved (and perhaps even privately enforced, although I’d prefer to see the state continue in that role). The civil justice system may simply be too big and too brittle to survive the change to a new legal marketplace.

Civil litigators, in turn, will have to adapt to a market in which the traditional sources of litigation revenue are routed out of the legal profession (towards e-discovery providers, game-theory bargaining systems, data-crunching prediction systems, etc.). Lawyers’ competitive strengths in dispute resolution reside in negotiation and advocacy skills, especially the latter; these are what make great “trial lawyers.” There will be a role for skilled barristers, perhaps as advocates in the traditional court system, perhaps as adjudicators in new private court systems. I expect there will be, on a volume basis, less civil litigation work, but it will be more demanding and fulfilling work of higher quality, and it will pay more handsomely than all the endless hourly-billed tennis matches that now bog down our courts.

It’s quite possible that Stage 3 painted too dark a picture of lawyers’ position, and that Stage 4 paints too brightly. Certainly, what I’m outlining here are the most positive outcomes for everyone — lawyers, non-lawyers, and most of all, clients. There are bound to be stumbles, breakdowns and various crises — revolutions rarely deliver a universally happy ending and they rarely wind up where the first revolutionaries intended. But what I do believe is that this future is possible and plausible — and if things break right and the market responds rationally, even likely. We’ll need luck and leadership, to be sure — but then, when haven’t we needed those things on our side?

I have one more post in mind for this series, Stage 5. Like Stage 4, it could run concurrently with other stages, and it could arguably be considered part of this legal market expansion period. But there are elements of it that deserve more attention than today’s entry can accommodate. It goes beyond expansion, all the way to transformation.

Jordan Furlong delivers dynamic and thought-provoking presentations to law firms and legal organizations throughout North America on how to survive and profit from the extraordinary changes underway in the legal services marketplace. He is a partner with Edge International and a senior consultant with Stem Legal Web Enterprises.

The evolution of the legal services market: Stage 3

In the first two parts of this series, we looked at the traditional legal marketplace that held sway for many decades and the current disruption in the market caused by new technology, new competition and new regulation. Today I want to extend the time horizon a few more years and suggest what Stage 3 of the market’s evolution will look like.

Stage Three: The Fully Open Market

Features

(a) The Market:

  • Multiple legitimate providers now fully active in legal market. Lawyers battling many competitors for market share.
  • Regulatory reform eventually sweeps away most remaining barriers to competition; only a small, high-value portion of legal work is reserved exclusively to lawyers.
  • Legal knowledge and tools are almost universally available and adaptable through the internet. Emergence of first industry standards in these areas.
  • Many consumer legal services shift from lawyers to non-lawyer providers; closure of numerous solo and small-firm law practices that cannot adapt.
  • Much corporate/institutional legal work shifts from law firms to non-firm providers; most midsize and large law firms downsize dramatically, some close.
  • Extreme efficiency: systems and software take on most paper, process and product work, plus growing amount of legal reasoning and analysis work.
  • “Non-lawyers” evolve rapidly to fill in new gaps in the market and serve clients directly; development and enforcement of non-lawyer standards and protocols.
  • Competition drives systemic improvements. Both surviving law firms and new legal enterprises make routine use of outsourcing, unbundling, software, project management, etc.
  • Golden age of legal technology: unprecedented volume and breadth of both individual and enterprise applications disrupt even innovative law firms.
  • Client access to legal services has never been greater. Prices for most services drop to their lowest levels in recent memory, some to true commodity levels ($0).

(b) Lawyers:

  • Growth of the legal profession stalls, then reverses for the first time in memory.
  • Traditional volume-based lawyer organizations (bar groups, publishers, CLE providers, etc.) either radically reinvent themselves or close.
  • Substantial number of law schools close or dramatically downsize; many adopt practical training offerings to compete for new students or serve practicing lawyers.
  • Lawyer self-governance survives, albeit with stricter standards for admission, discipline, and continuing competence.
  • Lawyer governance of the legal market comes to an end; governments or government agencies take over legal services regulation.
  • Legal jobs do disappear, even from outsourced destinations. Machines and systems partially or fully displace many lawyers from tasks they have traditionally performed.
  • The first new solo and small-firm practices begin to emerge: mobile, virtual, highly specialized, systematized, collaborative, and project-based.
  • The first truly global legal providers emerge on a scale not seen before (10,000+ employees, lawyers and non-lawyers). Massive law firm merger activity.

Era: 2016-2024

This stage is the logical conclusion of the period of creative destruction that began in Stage 2. The legal market is long overdue for some serious disruption, and much of this pent-up activity should be released late this decade and early next. Again, the key elements driving change are the lowering of barriers to non-lawyer ownership capital and competition, and the explosion of technology that displaces, or occasionally fully replaces, lawyers. Incumbents will have a hard time of it.

There is a steep price to be paid by lawyers during this period of market evolution: work that we had always assumed was within our exclusive bailiwick falls increasingly to providers outside our profession. Lawyers feel under siege on all sides, unable to rely on traditional defences supplied by governing bodies (many of which no longer regulate the market) and bar associations (many of which will lose critical masses of members and be unable to perform traditional professional advocacy functions). Many lawyers find themselves adrift in the market, in search of a purpose: what value do we provide? What tasks will pay the rent? Lawyers who graduated into the chaos of the 2010s are especially hard-pressed. This is one of the major factors that will drive an eventual widespread forgiveness of law school debt (part of a society-wide student debt forgiveness movement).

This is probably the nadir of lawyer employment, and there is much talk of a “lost generation” of lawyers who enrolled in law school just as Stage 1 was drawing to a close. In Stage 2, law firms downsized, but at least there were opportunities for contract work or entry-level tasks with LPOs or other low-cost providers. During Stage 3, however, even many of those jobs disappear into algorithms, software packages and artificially intelligent online programs. In addition, for reasons of both advancing age and shrinking opportunities, the Boomer generation finally departs the scene. The result, over time, is a smaller legal profession.

By this point in the market’s evolution, the supply curve has responded to the change in demand: law school enrolment is a shadow of its former volume, and schools are forced either to severely reduce their class sizes, merge with other faculties, or, in many cases, simply close their doors. This period sees the emergence of “non-school” legal education providers: private corporations that buy struggling law schools from their universities and turn them into training centers for both pre- and post-call lawyers, absorbing many CLE providers along the way.

The news is not all grim for lawyers. Stage 3 also gives us the first signs of the new law firm world — mobile virtual solos and streamlined mega-firms, to name two of the first species to emerge.

“Sole practice” has long been virtually synonymous with “general practice,” but solos in this era develop niche practices and hone unique skills in order to serve very specific markets over a wide geographic area. Small law firms also collaborate extensively with other solo and small practices, often coordinated by a  “general contractor” who assembles mix-and-match teams of solo specialists for specific one-off projects. What was once referred to as “general practice” work is more often the purview of large corporate entities that employ both lawyers and non-lawyers (criminal defence work remains the exception: matters of life and liberty still belong to lawyers).

Large law firms also adapt to the new ecosystem. The generic national or international “one size fits all” full-service firm is largely a thing of the past. Successful mega-firms are now truly gargantuan, growing to levels that make even the Big 4 accounting firms take notice. They are certainly not partnerships, vulnerable to the whims of powerful individual lawyers; they are businesses whose employees (many lawyers, but not all) support a defined culture of expectations and performance and adhere strictly to systems and management designed to maximize productivity and minimize waste. Super-boutiques also emerge to dominate particular practice or industry areas, also with a strong corporate infrastructure. Lawyers do not just lose control over the legal market; increasingly, they lose control within law firms.

The end of lawyers’ monopoly over legal services comes as something of a shock to everyone. This is not an easy or a clean transition: regulatory oversight of non-lawyer providers struggles in its early years, and there are some notable scandals whereby clients are systematically abused by unscrupulous providers. Many lawyers cannot resist the temptation to say “I told you so” when professional standards are seen to slip.

Significantly, however, despite some high-profile incidents of malfeasance among non-lawyer providers and the predictable failures of some ABSs, the new market dynamics work well. Regulation of the legal market hits its stride. Consumers of legal services, offered more choices, also become better-informed and more sophisticated. Lawyers, freed from paperwork, focus on higher-value tasks that better engage their talents. More people have more access to legal services appropriately aligned to their circumstances than ever before.

Once again, the dates suggested for this era are mostly guesswork. The real question is timing: How long will lawyers be able to maintain ring-fenced protection of the legal services market from outside intervention? The longer we can hold out, the longer this process will take, and it could be delayed for several years beyond this estimated timeline. But the end result will be the same. The “non-lawyer” genie is out of the bottle and it is not going back in.

But just as importantly, the world is not standing still while all this happens. Years of slow growth will come to a sudden end with a roar of renewed economic activity towards the end of this decade. Lawyers have not been idle, simply standing in the middle of the road waiting to be run over; they have been adapting as well.  These fallow years, as we’ll see in tomorrow’s instalment, are also setting the stage for the dynamic legal market and resurgent legal profession to come.

Jordan Furlong delivers dynamic and thought-provoking presentations to law firms and legal organizations throughout North America on how to survive and profit from the extraordinary changes underway in the legal services marketplace. He is a partner with Edge International and a senior consultant with Stem Legal Web Enterprises.

The evolution of the legal services market: Stage 2

In yesterday’s entry, we painted a portrait of a closed legal marketplace long dominated by lawyers, and we considered the positive and negative results of that state of affairs. Today, in the second of five stages of legal market evolution, we’ll look at current events and forecast the likeliest path those events will take in the immediate future.

Stage 2: The Breached Market

Features:
  • Macro-economic upheaval shatters previous steady state of legal market.
  • Legal work, formerly indivisible, starts breaking into mission-critical, ordinary and commodity tranches.
  • Multiple new providers enter legal industry, aiming at second and third tranches of legal services; legal work starts to leave law firms and go to these new providers.
  • Growing access to legal knowledge enables more “do-it-yourself” law among consumer law clients.
  • New options and financial pressures spur both insourcing and outsourcing of legal tasks by corporate law clients.
  • Lawyers find they have limited regulatory options against emerging competitors, which become legitimized and start to mature.
  • Prices for lawyers’ services fall; in absence of workflow innovation or infrastructure improvements, lawyers’ costs continue to rise; ergo, lawyer profits stall out or decline.
  • Law firms cut positions to preserve profits; employment rates for new lawyers plummet; pool of unattached legal talent grows.
  • Legal technology becomes more disruptive, displacing lawyers from traditional roles.
  • Law schools start to experience pressure from lower enrollment, tuition resistance, extreme bad publicity.
  • In some jurisdictions, lawyers lose power to regulate the legal market and/or themselves (most notably England & Wales).
  • Lawyer jobs, for the most part, do not disappear; they relocate (to small centers, non-lawyer companies, India). Movement, not elimination, of labour.

Era: 2008-2016

This is more or less where we find ourselves today. The end of the Boom And Bubble Era (roughly 1985-2008) creates a lengthy period of de-leveraging and tepid economic growth that (a) forces clients to cut back on legal spending generally and (b) gives them the opportunity and ammunition to renegotiate terms with their legal service providers. In some respects, clients become lawyers’ main competitors: by keeping work in-house or doing it themselves, they deprive lawyers of a previously steady supply of activity and revenue.

Simultaneously, rapid technological advances (especially online) lower barriers and create numerous entry points into the market for providers previously unable to access legal customers. Lawyers find it difficult to battle these new competitors, in two ways.

First, as market regulators and UPL enforcers, we find ourselves stymied by the unconventional nature of new providers. Some are based outside our physical jurisdiction (LPOs), some are arguably not “practising law” (e-discovery providers), and some meet latent market needs to an extent that we might find politically risky to shut down entirely (LegalZoom). Mostly, though, there are just too many new entities to deal with all at once. It was one thing for a regulator with limited funds to prosecute a single paralegal or self-help publisher at a time; it proves another to take on entire, multi-jurisdictional, investor-powered industries.

Secondly, as practitioners, we suddenly recognize a wide range of vulnerabilities in our businesses. Our internal inefficiencies bloat our costs and therefore (thanks to our cost-plus business model) our pricing; our new rivals use streamlined operations and low overheads to undercut our prices and still turn a profit. Our rigid business models keep us from embracing online service delivery or 24/7 availability; our high-tech competitors make these two features the foundation of their market strategies. After watching us and looking for weaknesses to exploit, the new providers move into our traditional market space; we lack the ability to respond aggressively.

Together, these two forces — a decline in overall legal spend and innovative new options for legal services — combine to reduce demand for the services of lawyers. This is not a monolithic process: some areas of law are hardly affected at all during this time, while others are slowly eviscerated. The change also takes effect at different times in different jurisdictions, making it difficult to discern big-picture trends from isolated events. Many lawyers continue to believe that “this won’t affect me,” “this is just the recession” and “things will soon be back to normal.” But even those lawyers who understand the new market dynamics find it hard to change long-established habits.

Declining demand for lawyers rapidly leads to over-capacity in law firms, which in turn leads to falling lawyer employment rates, especially among unskilled new graduates. Simultaneously, at the other end of the generational spectrum, the economic difficulties of the past several years encourage many older lawyers to delay retirement and keep working for as long as they can. This one-two punch produces a large and growing pool of unemployed and underemployed lawyers, downward pressure on lawyer incomes (especially among inexperienced practitioners), and succession crises at law firms in which senior partners who control client relationships grip the reins of power ever tighter.

This era marks the beginning of the end of the traditional “BigLaw” business model, whose fundamental premises prove incompatible with emerging market realities. Many large firms find themselves trapped by two opposing forces: cash crises brought on by lower effective rates and declining business, and confidence crises brought on by flat or falling PPP numbers and the pressure of actual or anticipated rainmaker defections. Several very large firms fail to make it through this crucible.

The legal education crisis also traces its origins to this period: decades of strategic somnolence by law schools, combined with a popular belief that these institutions have been gouging their students and given them worthless degrees in return, creates serious blowback for schools and helps push down law school application rates. By the close of Stage 2, several law schools find themselves in more dire circumstances than they could have imagined a few short years ago, and as with their BigLaw buyers, some do not survive the crisis.

The most important development of this period, however, is the arrival in 2012 of Alternative Business Structures: non-lawyer ownership and capital in legal enterprises in England & Wales (building upon Australia’s trailblazing efforts a decade earlier). Starting with the consumer market, but eventually spreading to corporate and institutional work as well, new participants find willing buyers for their products and services. This development, while spawning the usual troubles of any startup industry, does not produce the widespread disastrous impact on professionalism and the public interest that some had predicted. The longstanding presumption that only lawyers could be trusted to offer legal services is called into question, and officials in other jurisdictions start considering more closely the possibilities of regulatory reform to open the market.

It’s important to note that final entry in the foregoing bullet-point list of features. The work that many lawyers once performed (especially new lawyers in large firms) is relocating to lower-cost or higher-efficiency providers elsewhere, but it is not yet being eliminated altogether. New people in new places are doing essentially the same work that lawyers here once did. This new state of affairs, however, is also a temporary one.

Again, the start and end dates are approximate; I chose 2016 as the back end of this period largely because it feels, in 2012, like we’re about halfway there. This mix of past and future history seems to me the likeliest model to explain and predict current and future events. For many lawyers, this is not a fun time. Unfortunately for them, as tomorrow’s entry suggests, things are about to get considerably worse in Stage 3.

Jordan Furlong delivers dynamic and thought-provoking presentations to law firms and legal organizations throughout North America on how to survive and profit from the extraordinary changes underway in the legal services marketplace. He is a partner with Edge International and a senior consultant with Stem Legal Web Enterprises.

 

The evolution of the legal services market: Stage 1

I recently delivered my 15th and final presentation of 2012 about the changing legal market. Over the past 12 months, I’ve given speeches and keynote addresses to large firm retreats, sole practitioners, bar leaders and regulators, chief justices, law students, CLE providers, law librarians, and other groups and organizations throughout the United States and Canada. If I had one piece of advice to share from all these excursions, it would be that you will never regret bringing backup versions of everything electronic, especially should you accidentally spill a full bottle of water onto your laptop just before a presentation.

I haven’t just been speaking to these groups, however; I’ve also been listening to what these diverse stakeholders in the legal marketplace have to say. And I’ve taken away two sets of impressions.

The first is that a very wide spectrum of knowledge and perspective exists regarding the nature of change in the legal market. I’ve met lawyers and legal professionals who flatly dismiss any suggestion that the market is changing in ways that are revolutionary and permanent. I’ve met others who saw these trends developing years ago and have already re-engineered their businesses to adapt. The vast majority of audience members lie somewhere in between. Most of the people I’ve spoken with, however, have been surprisingly and encouragingly interested in what’s going on in the wider legal world and what it might mean for them.

My second takeaway, and the one I’d like to explore in greater depth over the next five days, is that there’s no real consensus within the legal market about just what’s happening to it. We don’t appear to have a collective sense of what kind of road we’re traveling, where it’s taking us, and at what stage of the trip we currently find ourselves. This is important, because without a shared understanding of both our journey and our destination as marketplace participants, it’s difficult to talk about how to make the trip better, shorter, and more productive.

So I thought I would set out for you my views on the state of the legal market and how change is rippling through it: where we’ve been, where we are, and where we’re likely to go. It seems to me that there will be five stages in the ongoing evolution of the legal market — and by extension, of the legal profession itself. By my reckoning, we’re about halfway through Stage 2. Today’s post will explore Stage 1; each of the next four phases will be examined in separate posts over the course of this week.

Stage One: The Closed Market

Features:

  • Law is a protected industry, with one legitimate, authorized, self-regulating provider (lawyers).
  • Legal knowledge and tools are largely inaccessible without lawyer involvement.
  • Lawyers regulate the market, policing their own conduct but also investigating and eliminating non-lawyer competition.
  • Lawyers “compete” with each other in genteel fashion, rarely undercutting other practitioners on rates or introducing systemic improvements to methodology or workflow.
  • Lawyers, facing no real competition and under no real pressure to innovate, create inefficient enterprises to deliver legal services, measure cost in hours, and price their services on a cost-plus basis.
  • Lawyer jobs increase proportionately, if not out of proportion, to legal service demand — the lawyer population grows year after year, like an expanding balloon.
  • Most legal services are expensive, and most lawyer careers are highly remunerative.
  • Legal technology is almost entirely “sustaining,” offering more convenient ways of carrying out traditional tasks without re-engineering those tasks.
  • Legal education is almost entirely academic and delivered to baccalaureate standards; professional experience is gained through on-the-job training, at clients’ expense.

Era: From most of the 20th century up until no later than 2008.

This is the legal market as most of us found it when we were called to the bar. In Stage 1, we run the show, and we run it to our liking. Not only do lawyers own the only saloon in town, we’re also the local sheriff, keeping the peace by prohibiting anyone from opening up a competing tavern. We enjoy the luxury of running our businesses as we please, safe in the knowledge that our collegial competitors in the profession will not create undue disruptive pressure through pricing or service delivery innovations. We deliver good products and half-decent service to a very limited, deep-pocketed clientele. Most lawyers make a fine living, and in many larger firms, they make an astoundingly fine living. These are good times for lawyers.

But they aren’t perfect times, of course. Our reliance on cost-plus pricing, our desire to increase profit, our aversion to risk, and our unwillingness to innovate all combine to create an over-reliance on individual hourly labour as an engine of growth. This in turn leads to burnout and emotional problems among lawyers and growing dissatisfaction with the lawyer’s life, not to mention frustrated clients who seek greater price certainty and more proactive interest from their providers. It also leaves us vulnerable to the possibility of competitors who might choose to play by different rules; we fail to develop any natural defences beyond regulatory action.

Legal education, meanwhile, underperforms its potential: most faculty have little experience with practice, and almost all faculty view the practicing bar with a certain degree of contempt, leading to generations of law graduates singularly unprepared for a legal career. Self-regulation, while critical to our independence, breeds bad habits of protectionism and self-indulgence. And it perhaps goes without saying that access to justice belongs primarily to those with the money to afford lawyers and the time to see legal matters through the labyrinthine legal process.

You could certainly argue the cut-off point for this era. Some might trace the beginning of the end to 2004, others to 1999; if you practised residential real estate, you can go back considerably further than that. There was no single “light switch” moment at which everything changed and a new paradigm emerged fully formed; evolution isn’t like that. Some of these tendencies weakened throughout the 2000s, while others are still going strong today. But it seems fair to assert that by 2008, when the financial crisis was breaking and the first provisions of the Legal Services Act were being enacted, the longstanding era of the lawyer-centered legal marketplace was drawing to a close.

An observer from outside the market could easily see how this artificially calm state of affairs might be ruptured, and would hardly be surprised to learn that such a breakage was imminent. Tomorrow, we’ll take a look at what happens when this long-closed market is abruptly breached by numerous external forces.

Jordan Furlong delivers dynamic and thought-provoking presentations to law firms and legal organizations throughout North America on how to survive and profit from the extraordinary changes underway in the legal services marketplace. He is a partner with Edge International and a senior consultant with Stem Legal Web Enterprises.

The College of Law Practice Management’s 2012 Futures Conference

The College of Law Practice Management does a lot of great things — honours the pioneers and brightest lights of legal management, sponsors the InnovAction Awards, supports various access to justice initiatives, etc. But next month, you have the opportunity to participate in one of the College’s most high-profile and important projects: The Futures Conference.

From October 26-27, 2012, at Georgetown University Law School in Washington, DC, scores of the legal profession’s thought leaders and decision makers from around the world will gather to hear cutting-edge presentations from some of the most influential players in the legal market. The entire brochure for the Futures Conference can be found here (in PDF format), while Ron Friedmann has an excellent post summarizing the presenters and their presentation.

I’ll content myself merely with listing the speakers, to give you a sense of the star power at this event:

That is a powerhouse lineup you won’t find anywhere else this year. If you haven’t booked your reservation yet, I strongly encourage you to register today for the College of Law Practice Management’s 2012 Futures Conference. As Richard Susskind says, “The best way to predict the future is to create it.” This is your opportunity.

Jordan Furlong delivers dynamic and thought-provoking presentations to law firms and legal organizations throughout North America on how to survive and profit from the extraordinary changes underway in the legal services marketplace. He is a partner with Edge International and a senior consultant with Stem Legal Web Enterprises.

Back when we used lawyers

My father was born in 1922. When he was 7, and the stock market crash triggered the Great Depression, cars were still an unusual sight in his hometown. Forty years later, he watched a live broadcast of Neil Armstrong walking on the surface of the moon. Less than 40 years after that, he used Skype to speak with his grandchildren halfway across the country for free.

It’s easy to forget just how astonishing the last century of scientific and mechanical progress has been. And the younger you are, the easier it is to forget it, or to not even recognize it in the first place. My own children are now 7 and 5, respectively, and they’ve never known a time when you couldn’t get the answer to any question by typing a few words into a portable device with a touch-activated screen. My stories about doing research with bound encyclopedias might as well be tales from the Stone Age.

This says something about our ability to become accustomed to the previously miraculous. But it also speaks to our sociological amnesia. The nature of things, when we first notice them, is the way we assume they’ve always been and how they always ought to be. We mistake “familiar” for “normal,” “the latest” for “the last,” right up to the very moment of revolutionary change.

But once change happens, it then becomes difficult to remember that we ever did things differently, or why we ever would. You’ve probably seen TV shows like The Worst Jobs in History and thought, “People actually used to do these things?” But at the time, that was just the way things were. It was normal. Imagine what our descendants, decades or centuries from now, will think of us when they look back at what we assume is normal today.

The most recent edition of The Economist‘s Technology Quarterly offers three excellent illustrations of  how easily “the way we’ve always done things” could vanish. Take a few minutes to read about (a) the Gates Foundation’s support of three new types of toilets that require neither clean water nor sewer infrastructure, (b) a plethora of affordable solar-powered portable lights that require neither transmission grids nor flammable fuel, and (c) most amazing of all, the rapid progress towards cars that don’t require drivers.  These are innovations that might be able to prevent one million driving deaths from human error every year, prevent 1.5 million children’s deaths from diarrhea every year, and provide light to 1.4 billion people worldwide without access to grid electricity.

Once you’ve finished these articles, stop and take a moment to think about what constitutes “normal” in the legal marketplace today. Then think about what your law firm will look like in 10 to 15 years, based even on the technology we’ve already developed. Will the future legal marketplace still require lawyers? If so, for what purposes? Within the next few decades, we will very likely have light without fuel, sanitation without water, and growing numbers of cars without drivers. Is it really a stretch, in that context, to imagine law without lawyers? Is it realistic to believe that “the way it used to be” is also “the way it’s always going to be”?

People have always used lawyers for legal services, and everyone has always thought that was normal. But when new options emerge, and as they’re adopted, we see the idea of “normal” change almost overnight. I implore you to open your mind, today, to what will constitute “normal” in the future legal marketplace.

Jordan Furlong delivers dynamic and thought-provoking presentations to law firms and legal organizations throughout North America on how to survive and profit from the extraordinary changes underway in the legal services marketplace. He is a partner with Edge International and a senior consultant with Stem Legal Web Enterprises.

The confidence of the dinosaurs

“When the platform changes, the leaders change.”Seth Godin

You’ve seen the same signs I have. The volume of pro se litigation continues to set new records every year, most notably in family law. Do-it-yourself websites for contracts, wills and divorces keep flourishing, with non-lawyer providers like LegalZoom and Rocket Lawyer boasting millions of customers and millions of dollars in venture capital investment. Foreign professionals and sophisticated software are surging onto lawyers’ traditional business turf. These trends and others show every indication of continuing throughout this coming decade.

The overall legal market, despite what you might conclude from all that data, is actually strong and growing. But as Toby Brown has noted, it’s growing with only minimal involvement by or financial gain for lawyers. Market growth is passing us by. Law firms of every size and description, in every jurisdiction, are experiencing flat or declining revenue or profit. This is mainly because lawyers and law firms have proven to be less accessible, more expensive, and less responsive than clients are increasingly willing or able to tolerate, and because those clients are now test-driving alternative options for legal services.

That’s fairly easy to understand. What’s not so easy to understand is why most lawyers haven’t responded to this emerging reality. More and more, month by month, the market is acting in new and unfamiliar ways that don’t follow the traditional script. Yet most of us keep acting as if nothing has really changed, or as if the change that we do perceive is merely minor and fleeting. We choose to ignore the growing evidence of new behavioural patterns among our clients.

The only reason I can think of to explain this is the serene confidence of incumbency. Lawyers still own this market, and we’ve owned it for longer than anyone can remember, a happy fact that we ascribe to our natural superiority. We feel a deep and untroubled assurance of our continued dominance over legal services.

Well, this is a bad time to be an incumbent in the legal marketplace.

If you or your firm or your organization or your model have been riding high in this market for years or decades, then a time of reckoning is at hand. Fundamental changes in the market for legal products and services are driving profound changes in the behaviour of legal service purchasers and other market participants. Those changes are coming to constitute a new environment, a fresh playing field, a new set of rules for legal service providers.

That’s a serious challenge. And it is especially a challenge to the providers and institutions that have long occupied the market’s pole positions — the perennial winners, the default choices, the clubhouse leaders. That is not limited to lawyers and law firms — it’s market-wide.

  • In-house counsel have been trying the patience of their corporate colleagues for years, through their inability to bring predictability, control, and budgetary discipline to the legal risk management function. That patience has run out in many companies, which are turning to procurement professionals to deliver the results the CEO and CFO want. Some corporate counsel have found themselves being “worked around” by their own employers.
  • Courts and judges have served as the ultimate arbiters of private disputes for centuries. But the ongoing, long-term breakdown of the litigation system has generated a host of alternative options for private dispute resolution, from familiar options like mediation and arbitration to newer entrants like online DR and game-theory-based dispute elimination. Courts are well on their way to becoming a largely irrelevant niche player in this market, their time consumed by cranks and corporations.
  • Law schools, for the 150+ years following the legal profession’s post-apprentice period, served as the only route into a legal career. This market monopoly, combined with academia’s natural inclination towards inertia, has made schools fanatically resistant to change. But the collapse of the traditional lawyer employment route is hitting schools hard; the 25% drop in applicants to US law schools over the past two years is just the leading indicator of trouble.
  • Legal publishers saw this trend coming sooner than most: the evisceration of print publishing by online technology forced these companies to begin expanding into areas like online research and knowledge management. But even with that head start, giants like Lexis and West face challenges from new companies like Bloomberg Law, new collectives like Legal Information Institutes, and down the road, consumer information leviathans like Google.
  • Bar associations were integral to the development of an organized profession and collective lawyer activity. But like other aging non-profits, many became more fixated on their own interests than on those of their members, and they came to prioritize the interests of their most influential volunteers. Worse, niche competitors began replicating their core offerings — networking, education, content — leaving bar associations struggling for purpose and identity.

It bears repeating: these are the winners we’re talking about. These are the companies, organizations and professionals that defeated other contenders over the course of many decades by developing models that delivered top performance in their respective environments. They’ve been around for so long that we (and, dangerously, perhaps they) assume that their dominance is natural. But it’s not; it’s environmental. They adapted best to their prevailing circumstances, and they did it so well and so completely that now, as their natural habitat begins to break down, they’re finding it harder to breathe.

These front-runners are highly vulnerable precisely by virtue of their front-running status. Their infrastructure, business culture and operating assumptions are inextricably linked to the status quo prevalent during their formative years; they flourished by adapting to these first environments they encountered. As those environments change, incumbents must find their way in a world for which they are increasingly not suited. This is the fundamental, and most frightening, insight that Clayton Christensen delivers in The Innovator’s Dilemma: industry leaders are regularly overthrown because their operating models could not adapt to their industry’s inevitable evolutions and innovations.

If you are or belong to a successful legal market participant today, it is most likely the case that your organization adapted to (and perhaps even helped bring about) the ideal environment for its success. What will you do when that environment changes?

  • If your entire business model is premised on pricing your services and paying your lawyers according to time spent on tasks, what do you do when clients stop dealing in that currency and demand a new one?
  • If your sole stock in trade is students who spend three years receiving basic law primers, what do you when both your inventory and its purchasers require a radically different product?
  • If your core purpose is to resolve private disputes, what do you do when new providers deliver the same outcomes much faster and much more cheaply than you could hope to manage?

Dinosaurs, to borrow a popular analogy often used to describe traditional lawyers, dominated the Mesozoic Era because they were perfectly suited to the world as they found it. Then the asteroid hit. But the asteroid didn’t kill every dinosaur in the world upon impact — it couldn’t; it wasn’t that big. What the asteroid did was cause extreme disruption to the environment in which the dinosaurs had evolved. The world around them changed, and the dinosaurs couldn’t adjust, and they disappeared.

What do you suppose is going to happen next in the law?

Jordan Furlong delivers dynamic and thought-provoking presentations to law firms and legal organizations throughout North America on how to survive and profit from the extraordinary changes underway in the legal services marketplace. He is a partner with Edge International and a senior consultant with Stem Legal Web Enterprises.

The limited-profit law firm

What if your law firm were legally prohibited from making too much money? What if there were a fixed profit ceiling for equity partners, and any profit exceeding that amount had to be distributed to others? What if your firm explicitly placed social goals ahead of revenue goals — what would change about your firm’s culture, structure and position in the marketplace?

This is, perhaps needless to say, mostly a thought experiment, since the number of law firms clamouring for this kind of setup are vanishingly few. But a recent article in The Economist about an emerging corporate form called a “benefit corporation,” or B Corp, got me thinking. B Corps, the article explains, “must have an explicit social or environmental mission and a legally binding fiduciary responsibility to take into account the interests of workers, the community and the environment as well as its shareholders. It must also publish independently verified reports on its social and environmental impact alongside its financial results.”

Companies seeking to establish themselves as B Corps are those wishing to place social or environmental goals above profit and revenue objectives, but which find it difficult to do that under the traditional corporate form. These aren’t non-profit organizations, but you might call them limited-profit, qualified-profit, or “yes,but” companies: yes, they want to make money, but they want to accomplish other things more. The Economist cites other corporate vehicles in this vein like flexible purpose companies (FlexCs), low-profit limited-liability companies (LC3s) and in the UK, community interest companies.

Could a law firm become a B Corp? Several small firms in the US have already done so, but there are complications. Carolyn Elefant explores the problems with B Corp law firms in a detailed post that points out a fundamental conflict: lawyers are required to place their clients’ interests ahead of all others, so a firm whose founding documents placed the highest priority on, say, the environment, would be breaking the profession’s ethical rules.

For example, consider a situation where a client receives a generous settlement offer in a contingency matter against the Sierra Club or some other environmentally conscious company popular in the community, but the client, reasonably, does not want to accept the offer because of certain conditions attached to the offer. However, pursuing the case to trial will be upsetting to the community and further, force the lawyer to lay off several employees to conserve cash flow for remaining discovery and trial and could potentially limit the Sierra Club’s conservation efforts due to lack of funding.

Ethically, so long as the client’s rejection of the offer is reasonable (which it is here), the lawyer must abide by the client’s decision. But under the b-certification framework, equal consideration of the interests of firm employees, the community and the client would militate in favor of the lawyer either strong-arming the client to accept the settlement or withdrawing from the case.

This is a strong objection to the use of B-Corp status for law firms, and if push came to shove, I could see a regulatory body ordering a law firm to abandon a corporate form that explicitly placed someone other than the client at the top of the priority pyramid.

Nonetheless, I wonder if there might not be other solutions. Slater & Gordon, for instance, the Australian personal injury firm that floated on the stock market several years ago and is now an international behemoth, makes for an interesting case study. As my Edge colleague Gerry Riskin pointed out at the time, Slater & Gordon’s initial prospectus was very clear with potential shareholders where its priorities lay:

“Lawyers have a primary duty to the courts and a secondary duty to their clients. These duties are paramount given the nature of the Company’s business as an Incorporated Legal Practice. There could be circumstances in which the lawyers of Slater & Gordon are required to act in accordance with these duties and contrary to other corporate responsibilities and against the interests of Shareholders or the short-term profitability of the Company.”

This seems to me a good way of making clear to shareholders that their profits are a tertiary concern for the firm: the firm believes (correctly) that its first duty is to the courts and its second is to clients. A modified form of B Corp or other limited-profit corporate form could be envisioned that would similarly arrange the peculiar priorities of a fixed-profit law firm. Might this kind of qualification address the ethical concerns that Carolyn raises? I’m not certain, but it’s worth thinking about.

For myself, I keep coming back to ponder the strengths and weaknesses of a limited-profit or fixed-profit law firm. Disadvantages? Legion: rainmakers and high earners would desert a firm like that immediately, knowing that their hard work would quickly strike an immovable low ceiling of financial returns. The firm would be unable to recruit ambitious lawyers or high-potential law students for the same reason. Clients who want the very best lawyers would turn away from a firm of anti-capitalist do-gooders. As a vehicle for anything more than a modest mid-sized firm, it’s almost certainly a non-starter.

But there’s upside, too. A law firm that was precluded from chasing ever-higher profits would have to find some other guiding business purpose. Maybe, as with many B Corps, it’s an environmental target, a quest to reduce its ecological footprint and those of its clients. Maybe, more likely for a law firm, it’s a social purpose: serving only clients in low- or middle-income brackets, making access to justice its higher calling.

Alternatively, maybe the firm simply rearranges how its profits are spread. Partner profits would be fixed at the start of the year on a percentage basis (lockstep or otherwise), so that beyond a certain dollar figure or percentage of total revenue, the partners couldn’t make any more money. Accordingly, the excess would be divided equally among associates or staff — everyone gets a bonus when the firm succeeds, driving everyone to make the firm’s success the top priority. And if you want to really go around the bend, make clients the beneficiary of success: every extra dollar at the end of the year is returned to clients per capita, like a co-operative. How’s that for a marketing tactic? Hire our firm and you might get a refund on your fees.

Yes, I know I’m dreaming in technicolour. And anyway, law firms don’t need a special corporate structure to do many of these things. But what these new vehicles really do is allow us to re-envision the purpose of the corporate entity, enabling reasons for existence other than the generation of wealth for ownership. The great majority of problems afflicting modern law firms, it seems to me, come down to money: competition for revenue, fights over profit, arguments about who makes more. Imagine a law firm that was structurally relieved from any of those concerns. You think we could live with a few of those in the legal market today?

Jordan Furlong delivers dynamic and thought-provoking presentations to law firms and legal organizations throughout North America on how to survive and profit from the extraordinary changes underway in the legal services marketplace. He is a partner with Edge International and a senior consultant with Stem Legal Web Enterprises.