Don’t fear the rainmaker

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

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

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

1. The Source Of Law Firm Power

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

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

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

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

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

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

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

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

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

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

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

2. The Exercise of Law Firm Power

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

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

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

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

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

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

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

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

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

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

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

3. The Reality of Law Firm Power

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

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

It’s getting kinda hectic.

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

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

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

The end of the beginning

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

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

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

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

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

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

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

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

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

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

Whoopsie.

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

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

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

The limits of disintermediation

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

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

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

The consequences of disintermediation

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

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

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

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

Two legal supply sectors

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

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

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

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

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

Tomorrow’s law firm, today

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

Never interrupt the compensation committee meeting.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Yes, these are photos from my Amsterdam trip.

Q. What can lawyers do in the meantime? 

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

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

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

 

 

The revenue-neutral associate

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

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

Use anytime during your first five years in practice.

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

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

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

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

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

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

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

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

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

Maybe not this kind of training day, though.

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

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

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

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

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

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

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

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

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

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Navigating the multi-polar legal market

Georgetown Law School and the Thomson Reuters Legal Executive Institute are ready to call it: the party’s officially over. The 2017 edition of their annual Report on the State of the Legal Market is unequivocal in its assessment of how completely the commercial legal services market has changed over the past decade.

Corporate clients, under intense internal pressure to reduce the overall costs of legal services, insisted on taking control of their matters and managing the work of their outside law firms to a degree never before seen. [They] emphasized the need for greater efficiency, predictability, and cost-effectiveness in the legal services they received. This basic change in client attitudes … has resulted over the past decade in fundamental changes to the legal market itself. These changes are foundational and, in all likelihood, irreversible.

These trends are sufficiently familiar to us by now that we might dismiss this as merely a statement of the increasingly obvious. But consider just how much has changed in the last decade. Ten years ago this month, the Dow Jones Industrial Average stood above 12,000 points; the NASDAQ hovered around 2,400 and the S&P 500 at 1,400. Two years later, they’d each lost more than 40% of their value. While the indices have more than recovered in the intervening decade (they stand at 19,828, 5,565, and 2,268 this morning, respectively), law firms’ fortunes have not.

Those were the days, my friend, we thought they’d never end….

Back in 2007, as “The State of the Legal Market” reminds us, firms were coming off “more than a decade of almost uninterrupted growth in demand, revenues and profits.” As the report’s subtitle (“10 Years of a Stagnant Law Firm Market”) suggests, those days are a hazy golden memory. “[D]emand growth for law firm services has been essentially flat, productivity has been declining, expenses have been growing (albeit at a fairly modest rate), and leverage has remained essentially unchanged. In short, the only factor positively impacting revenue growth has been the ability of firms to raise rates 2 to 3 percent a year.”

So the market conditions for commercial legal services have changed, and many law firms are significantly worse off for it. But the remarkable thing (or the frightening thing, depending on your perspective) is that we haven’t even seen real change in this market yet.

All that’s really happened so far is that corporate clients have become rather more stringent about outside counsel budgets and have begun to use alternative suppliers more frequently. Those measured steps alone have been enough to eviscerate profit margins in many law firms. Imagine what will happen when clients start to get serious.

Because so far, they really haven’t. Ron Friedmann makes this point in an illuminating post titled “Legal Operations – What We Know Now.” Ron reports on the slow ascendance of law firm shared services centers and other staffing changes, but I’m especially interested in his dispatches from the client side, based on the Blickstein Group’s Law Department Operations Survey:

  • 57% of responding law departments, up from 50% two years ago, report having an LPM program. Of these, only 2.5% report the program as “very effective” and 44% as “somewhat effective.” In my view, more law departments need LPM and they need to do it better.
  • 63% report having formal metrics or reporting but effectiveness is low. On a scale of 1 to 5 (where 1 is primarily manual and 5 is fully automated with dashboards), the average is 2.1. To get more value from both in-house and outside lawyers, law departments must continue on the metrics past more rapidly.
  • Law departments use providers other than law firms for a range of functions as the chart below shows. Legal process outsourcers (LPO) are one provider type doing this work: 21% of respondents use LPOs, up from 17% in 2015. These data are one explanation for the relatively flat growth of large law firms.

These are, let’s be honest, pretty weak numbers. Fewer than 3% of law departments find LPM “very effective”? Metrics and reporting earn just a 42% average grade in sophistication? Barely one in five law departments sends work to LPOs? This isn’t a knockout punch; these are merely exploratory jabs — yet they’ve still been strong enough to send many law firms reeling.

There’s no single reason for the trepidation with which law departments have flexed their muscles so far. I don’t think you can attribute it all to doubts about the efficacy or reliability of alternative legal services providers: the major players in this sector have ten-plus years of outstanding results and tens of millions of dollars in annual turnover. Nor can you still put it down to loyalty shown by general counsel to their longtime law firms, a rapidly diminishing commodity as generational change reshuffles the ranks of law department leadership. It might, in the end, simply be the difficulty everyone encounters when trying to break old purchasing habits, multiplied by lawyers’ inherent difficulty in changing anything.

But I do think an additional, underrated factor might be a high degree of uncertainty within law departments about what their options actually are. I’ve presented to law departments and spoken with in-house lawyers who are intensely interested in getting better results, faster and less expensively, than their traditional methods have delivered. But they don’t know:

  • what categories of new processes or alternative suppliers are available to them,
  • which processes and suppliers are most highly regarded within each category,
  • which processes and suppliers are most appropriate to use in a range of situations,
  • what bottom-line improvements they should expect from using such processes and suppliers,

and perhaps most importantly,

  • what they themselves would have to do differently if they employed these processes and suppliers.

Armed with this information, law departments could greatly accelerate their use of alternative methods and suppliers of legal service delivery. The problem is that there’s no obvious credible place to obtain this information. The providers of the alternatives themselves are hardly an objective source of insight; equally, I wouldn’t rely on law firms to extol the relative virtues of their competitors. A number of legal consultancies have this capacity in theory, but I’m not aware that any specialize in practice (though I’d be happy to learn otherwise).

It seems to me that this calls for a new capacity in the legal market — one that I cover in my upcoming book Law Is A Buyer’s Market: Building a Client-First Law Firm, which you’ll be able to buy here at Law21 late next month. (Yes, this is a plug.)  Here’s what I wrote on this subject:

In this new market, legal services buyers have to work a lot harder to choose their legal services providers and must manage their legal affairs much more closely. They need to understand how legal tasks are carried out, which legal services (if any) they should carry out themselves, and how to monitor the progress of all their legal tasks against various time, budget, and effectiveness milestones. Even more challenging, buyers have to assess the value that their desired legal services provide to them, in order to figure out a fair price for those services and judge whether the services were delivered to expectations and specifications.

In this regard, a great opportunity awaits lawyers (or if not lawyers, anyone else with smarts and ambition): to create the role of “legal concierge.” This is a professional who gives you, not legal advice, but instead advice about buying legal services. He or she analyzes your situation, asks some questions, identifies potential sellers of appropriate services, and prepares you to approach and negotiate with them. You could think of it as a broker or real estate agent for legal needs, but I prefer the personal-service feel of “concierge.”

Nobody under the age of 55 will get this reference.

From a law department perspective, you could have a good argument about whether to “build or buy” this capacity. If the legal function is large and complex enough, you would invest a person or small team with the mandate of mapping out the entire ecosystem of alternative processes and suppliers and advising lawyers and support staff of the best options for each kind of project or case. Smaller law departments wouldn’t have the budget to develop that functionality, but they’d probably be interested in an outside concierge service that they could retain for advice on individual matters.

The real potential for a legal concierge, however, would be in the consumer and small business market. This sector is almost as dynamic as the commercial law market, in terms of emerging options to traditional law firms. But the buyers in this sector have almost no knowledge of the many cost-saving and efficiency-upgrading options that are now coming available to them.

Surveys repeatedly demonstrate that individuals and small businesses see legal services choice as a stark dichotomy: either hire a law firm or do it yourself (or ignore your legal matter altogether). They’re not just unaware of what other options can do; they don’t even think about the possibility that there are other options.

If you could reduce or eliminate that blind spot, you’d not only provide a valuable commercial service; you’d also go some distance towards closing the access-to-justice gap. Increasingly, I suspect, the A2J movement is going to focus less on making lawyers’ services more affordable, and more on making people aware that they have choices other than lawyers for their legal needs. In that vein, a good legal concierge could skilfully and objectively scan the legal market for various types of service providers and develop systems by which it could recommend that its clients retain one or another combination of such providers for its specific needs.

Like any good brokerage, of course, a legal concierge would have to be clearly independent and immensely trustworthy, so maybe it would be best to start out as a public or government agency (which would also alleviate the cost of using the service). But over time, I could see a company with a strong brand in trusted recommendations (hello, Amazon) take this service into the private sector. The legal market is becoming a complex, multi-polar environment, and with so many new destinations on offer, navigators are becoming increasingly necessary. A legal services concierge could be a good place to start.

Buyers of legal services are in ascendance, even if they don’t entirely realize it yet. Eventually, they’ll fully appreciate the power they hold and the options at their disposal, and they’ll start to navigate among those options with ever-greater confidence and discernment. Once that day arrives, many law firms might look back fondly on these last ten years not as an unhappy time of stagnation, but rather as a relative period of gentle and graceful decline.

Playing the client’s game

Some years ago, when I was working for the Canadian Bar Association, real estate lawyers in Canada became deeply troubled about losing their lead role in residential real estate transactions. They complained that they undertook a great deal of work and expense to ascertain the validity of title, yet they made only a few hundred dollars per transaction, while realtors and title insurance companies did much less (in the lawyers’ view) and made much more. Many of the strategies drawn up to change this state of affairs aimed (ineffectively, as it turned out) to restore the lawyer as the “quarterback” of the real estate deal.

Maybe you're not quite right for this role.

Maybe you’re not quite right for this role.

My problem with that approach, as I expressed it at the time, was this: I don’t think lawyers are the quarterbacks in this market. Quarterback is the most powerful position in football, a big-picture strategist, personnel manager, and elite performer all rolled into one. But most lawyers are tacticians, not strategists, and they prefer neither to manage nor to be managed. More likely, I said, we’re the third-down fullback called on to blast through the line in a short-yardage situation, or the speedy wide receiver who goes deep on 3rd-and-22 to make a big play. We’re specialist performers who wait on the sidelines until we’re called upon to do one thing really well.

I was reminded of that observation this week when I read a column by Anthony Hilton in the UK’s Evening Standard with the galvanizing title, “Why their profession’s failures mean lawyers don’t win top City jobs.” Among his critiques of the commercial bar, Hilton had this to say:

[L]awyers have allowed themselves to be pushed further and further down the food chain, and away from the seat of power. In today’s commercial world, when there is a deal to be done, it is picked over by investment bankers, brokers and public relations consultants — all of whom have a share of the ear of the chief executive. Then when all the high-level stuff has been sorted by these experts, the package is tossed to the lawyer with instructions to sort it out and make it presentable. … 

[L]awyers have lost the glamour, the access and the special status that came with having opinions worth listening to. They have allowed themselves to be commoditised and to become the last port of call. They have allowed some of their best brains to move in-house as general counsel in the biggest companies, taking the interesting legal advisory work with them. … 

Now, when Hilton speaks of “lawyers” here, he means the private Bar, members of law firms engaged in private practice. But of course, “lawyers” are also working in-house, as the very corporate counsel he refers to here. They’re serving as the executive-level advisors and risk management experts in corporations’ corridors of power.

So it’s not a question of “lawyers” per se losing their power and value. It’s a question of where lawyers need to go these days if they want to develop real power and deliver real value in corporate affairs. Hilton suggests they need to go to the client side — and that, when you think about it, is an astounding turn of events. Remember when law firm partners would look down dismissively on those lawyers who “couldn’t cut it” in practice and had to take refuge in-house? It wasn’t all that long ago.

I don’t think there’s any question that power (and therefore prestige) is increasingly accumulating on the buyer’s side of the legal service relationship. How much power? Consider another column, this one by Alex Novarese of Legal Business in the UK, who was reflecting on whether anything in the legal market really posed a genuine threat to the world’s most elite law firms. He concluded that there was such a threat:

[I]t comes from those paying the bills, the clients. The sustained development of in-house teams means major bluechips already have legal teams that resemble global law firms in their breadth and resource. …  The drain of good people from private practice to in-house has become a feedback loop and a dangerous one for law firms as it remakes the legal industry. In the UK, more than one in four commercial lawyers works in-house. On current trends, it is not outlandish to imagine a 50/50 ratio in 20 years. What happens to the conventional buy/sell dynamic when the clients have as many providers in-house as externally? Why go to a law firm at all?

That last question is remarkable simply for the fact that it can reasonably be asked. And as the world’s largest legal buyers build more and more internal legal capacity, there’s no obvious answer.

Google’s in-house law department, for example, employs 1,000 lawyers to focus solely on legal issues, which is more scale and expertise than the vast majority of law firms can muster. But Google, like many other companies, also maintains a Legal Operations team, which handles legal technology, internal operations, and interestingly, “vendor management” — and the “vendor” category includes outside counsel. Law firms, increasingly, aren’t going to report to the General Counsel — they’re going to report to the Director of Vendor Management. What does that tell us about how power and prestige are shifting?

If you’re looking for the quarterback in the corporate legal market right now, I think you need to go visit Legal Ops. The skyrocketing growth of the Corporate Legal Operations Consortium suggests that Legal Ops will continue to take on more power and responsibility in the corporate legal services relationship. And as power continues to accumulate on the client’s operational side, a major change is occurring in how corporate clients view legal matters.

The ongoing trend towards insourcing legal work, and the consequent decline in the amount of work sent to law firms, confirm that corporations are now building up their internal legal infrastructure. But they’re not just adding more lawyers — that would amount to simply replicating law firms inside the corporation, which is not a smart way to go about it. Large corporations are instead re-engineering their legal infrastructure towards a new model, one in which Legal doesn’t seek to address every legal issue within the company (which is an impossible task in massive organizations). Instead, the new infrastructure aims to help the company and its people solve legal problems themselves — or better yet, anticipate legal risks and thereby avoid problems altogether.

That’s a significant strategic shift, because it re-envisions the role of “legal problems.” Law firms tend to regard legal problems as part of their inventory, providing solutions to those problems on an hourly basis. But corporations view “legal problems” as an obstacle to business continuity and corporate profit, and therefore as something to be minimized and eliminated. In this model, legal expertise reduces friction and therefore cost. It’s not something you buy, it’s something you integrate into your business to help it run better.

“There are no legal problems,” said Cisco’s Mark Chandler recently. “There are only business problems.” I don’t think that’s entirely correct. But it doesn’t matter what I think — it matters what the general counsel of one of the world’s largest corporations thinks. And he’s redefining legal issues away from law firms and towards the company’s legal infrastructure.

No, I’m not saying this is “the death of BigLaw,” obviously. What I’m suggesting is that the large, full-service law firm — the traditional business platform for private-sector lawyers serving corporate and institutional clients — is entering a period of existential crisis. What purpose will law firms serve in this market? Why will clients go to them at all? What do they offer that the buyer cannot either develop and deploy internally or acquire elsewhere at a competitive price?

I’ve heard it said that 80% of corporate legal work is going to either stay in-house or be directed to lower-cost third-party specialists, with the remaining 20% of high-end, high-stakes legal tasks (the “bespoke” work) delegated to outside counsel. But law firms developed as destinations for 100% of that work, and they have the size, overhead costs, and hierarchical structure to prove it. What does it look like when a supplier loses 80% of its business? How do you cope with that?

We’re entering uncharted territory here, and there are possibilities arising that we’ve not considered before. Maybe full-service law firms that performed every aspect of a legal matter, no matter how trifling or routine, were a temporary stop on the evolutionary road of legal services. Maybe such law firms are vestigial and will eventually fall away — to be replaced by smaller expert boutiques where legal shoppers go for occasional splurges, while the rote work that supported their predecessors is either claimed by software and systems or is performed by clients in the ordinary course of events.

Is that the future for BigLaw? Are large law firms destined to be simply a collection of third-down specialists, niche experts called in to perform a high-value task once in a while? And if so, is there necessarily anything wrong with that?

I really don’t know the answers to these questions. But what I do know is that law firms — at least, as they are currently owned, structured, and managed — are in the process of losing their status as the legal market’s power brokers. The center of gravity in this market is shifting to clients, and it’s not going back. The law firm is now just one more resource among many, a particularly fussy and expensive resource called in only when absolutely necessary. And someone else is going to decide what “necessary” looks like.

The last, ominous, word on this goes to Alex Novarese: “what your clients want is not always good for you. What your clients want can clean you out.”

football

The obsolete associate

As red herrings go, you will not find a fish more scarlet than Cravath, Swaine & Moore’s recent announcement that it would raise its starting salary for first-year associates to $180,000 per year. Now granted, it was great fun watching many other AmLaw 100 firms trip over each other in their haste to match the raise. Had these firms all issued press releases titled, “Cravath Is The Firm That Matters: We Play Follow-The-Leader Because We Possess Neither Gumption Nor Initiative,” they could scarcely have communicated their own positions and vindicated Cravath’s move so well.

But while the predictable grumbles were reported shortly afterwards from corporate law departments, I have a hard time imagining that it’s this particular straw that will shatter the camel’s vertebrae. Clients have enough serious complaints about outside counsel that this probably would register mostly as a stinging but still fairly trivial annoyance.

Cravath’s $180K announcement looks to me primarily like a marketing play — a reminder to clients and competitors alike of the firm’s alpha-dog status: “We decide how much we pay our people, and if you don’t like it, do something about it.” Until such time as other firms decide to stop playing Cravath’s game, or its clients decide they’ve had enough of rate increases for lower-value work, nothing much will change.

But it’s important to note that whatever Cravath’s $180,000 announcement was meant to achieve, it wasn’t about “attracting the best talent,” regardless of what the firm might claim. For one thing, if a firm really wanted to own the market for new lawyers, it would raise starting salaries to $300,000 or more. That’s how you clear the field of competitors: either they match you dollar for dollar at significant expense, or more likely, they drop out of the race and concede victory.

But $180,000? Pfft. In the context of how much these firms make, a $20,000 annual increase is chump change, a painless way to generate some publicity, assert market leadership, and maybe get a few more students clamouring for OCIs. Do we really suppose there were top-ranked law students who weren’t angling to land a spot at Cravath before now — who were just waiting around for that $20K pot-sweetener?

"A 12.5% salary increase? Where do I sign?"

“A 12.5% salary increase? Where do I sign?”

But there’s another, more significant reason why Cravath’s salary move wasn’t really about attracting new associates: because new associates mean less and less to law firms all the time.

There are only two reasons why a law firm employs associate lawyers: to breed future partners and leaders, and to provide leveraged labour. The first reason is not especially compelling to many law firms these days, as they’re either busy poaching partners from other firms or de-equitizing the partners they already have. Promoting promising talent from the minor leagues, although it should be a priority, often isn’t.

The second reason is far more important for most firms: they developed a tournament system in which attrition would eliminate 80% to 90% of an associate class in its first ten years, while these associates churned out backbreaking amounts of billable work to fuel the firm’s profitability engine. That function has become the overriding raison d’être for associates in law firms.

But throughout the last five to ten years, this rationale for employing associates has weakened dramatically. First, work gradually began moving off the desks of junior associates, largely because clients no longer trusted the competence of first- and second-year associates and resisted paying (or refused to pay) their billed hours. That work found its way to “non-equity partners,” superannuated associates who could bill at higher rates but weren’t otherwise that productive, and equity partners themselves, who needed the hours to meet the perverse demands of their own compensation systems. Associate leverage, which was once 3-1 and 4-1 in most large firms, fell to 1-1 or even less in many places.

Then, as the post-crisis economic situation became bleaker and the mood of the legal market darkened, the supply of associate-level work dropped significantly. Law departments began insourcing straightforward legal work, tired of paying a 50% premium for the efforts of law firm lawyers. Layoffs and hiring freezes at many law firms, occurring both in the immediate financial crisis and during the malaise that followed, contributed to a growing pool of unemployed and under-employed young lawyers and recent law graduates. And that created a new presence in the legal market: companies and agencies that offered the services traditionally performed by law firm associates at lower prices.

“There aren’t as many law firm jobs for graduating students anymore,” Integreon’s Caragh Landry told Corporate Counsel last summer. “There’s a trend toward large pools of contract attorneys who have great degrees, they have maybe done some practicing and they’re looking for jobs.” What we once called “law firm jobs” increasingly are being provided by companies like Axiom and United Lex, which appear more and more as if they’ll supplant large full-service firms as the primary provider of entry-level lawyer experience.

That short-term contract and temp lawyer situation has now blossomed into a long-term project and flex-work legal talent market into which law firms themselves are dipping (and not always nicely).

  • More than half of the firms surveyed by Altman Weil this past spring reported that they’re using part-time and contract lawyers to meet demand, including 75% of firms with 250 or more lawyers.
  • Several large law firms around the world —  Fenwick & West (US), Blake Cassels (Canada), Simmons (UK), and Corrs (Australia), to name just four examples — are establishing their own flex-time, contract, or project lawyer divisions.
  • DLA Piper even partnered with agile-law pioneer Lawyers On Demand rather than create its own division.

Nor is this entirely being driven by the firms: the emergence of secondment and project lawyer agencies is proving attractive to millennials. Lawyers On Demand’s new Spoke service is reporting immense interest from lawyers. Essentially, law firms are outsourcing a growing amount of their “associate work” to freelance lawyers, saving themselves pension, benefit, management, training, and overhead costs in the process.

And it increasingly appears that whatever hasn’t been outsourced will soon be automated. In a survey last October, says The American Lawyer, “35 percent of law firm leaders said they could envision replacing first-year associates with law-focused computer intelligence within the next five to 10 years. That’s up from less than a quarter of respondents who gave the same answer in 2011.” Deloitte estimates that 100,000 legal roles could be automated in the next 20 years. In this respect, law is simply experiencing the same job squeeze that many other industries have gone through: thousands of US manufacturing jobs that have been automated out of existence simply aren’t coming back.

Leverage this.

Leverage this, Your Honour.

The connection between more automation and fewer associates is pretty clear. “It is easy to imagine a world where partners rely on machines instead of associates to do work that is already being done,” Casey Flaherty wrote recently. “It is much harder to configure a future where the machines have taken on those tasks while leading to employment of additional associates to perform higher value work that (a) no one is currently doing and (b) the capable machines, who replaced the associate in the previous work, cannot handle.”

All of this helps explain the stubbornly high levels of unemployment experienced by US law graduates over the past several years, numbers that have mostly held steady despite an historic drop in the number of law school applications (and in Canada, too). Associate hiring among the National Law Journal 350 largest US law firms was flat in 2014, the most recent year for which I can find a report, while “MidLaw” firms of 11-100 lawyers rarely hire new lawyers at all. The number of salaried positions offered by law firms for lawyers for their first few years of practice is at a standstill, and it’s inevitable that these numbers are going to start sliding backwards very soon.

What we’re seeing, as I predicted a few years ago, is the accelerating diminishment of the law firm associate. Certainly, law firms still compete hard for the “best and brightest” new lawyers to become their future leaders and rainmakers, and perhaps that’s what will eventually drive us towards $300,000 first-year salaries at the largest and richest firms.

But law firms are no longer sifting through each year’s graduating law classes searching for raw sources of leveragable labour. Instead, firms are finally going to join other businesses in other industries by getting most of their leverage from software and systems, rather than from humans. As a class of lawyers within law firms, associates are becoming obsolete: there’s just not going to be much need for them anymore.

This development represent a profound shift in the nature of law firms and legal work, and as it continues to unfold over the next several years, it will have equally profound effects throughout the legal market.

  • Law firms’ new lawyer classes will become permanently smaller, as firms focus on fewer candidates and conduct far more intensive assessments to see which of them will become future rainmakers and practice leaders.
  • Law firms will no longer be the career launching pad for so many new lawyers as they’ve been in the past, meaning other entry-level lawyer platforms will have to emerge (and competence training will become a more acute need)
  • Law firm pricing will slowly be transformed, as productivity will be measured less in billed work hours and more in products and services generated by both external talent and internal systems and software.
  • Law schools will have to reconfigure their curriculum to produce fewer general-purpose plug-and-play law firm associates (which is what the current system seems geared to produce) and more lawyers ready to provide value to law firms through technology, systems, and knowledge management skills.

I have a hard time seeing how law firms will ever return to the days when associates outnumbered partners and served as the primary source of leveraged revenue generation. The original strategic purposes and business functions of the law firm associate don’t really fit this market anymore. And there’s at least a little irony in the fact that those original purposes and functions are frequently traced all the way back to a law firm named Cravath.