Sunday, February 16, 2014

Dean Frank Wu on What Threatens Law Firms

This essay is by Dean Frank H. Wu, who is Chancellor & Dean of University of California Hastings College of the Law. This blog entry appeared originally at Huffington Post.

As a law school dean, I spend quite a bit of time thinking about how to reinvent legal education. As I meet with our alumni, I realize that they spend an equal amount of time thinking about how to reinvent legal practice.

Lawyers -- and others in the professions -- recognize that they are only slightly better off than other workers in the modern economy. They cannot presume that their reliance on their brains, rather than their muscles, protects them against the vicissitudes of the marketplace.

Three trends have an adverse effect on law firms.

First and most importantly, corporate clients are smarter consumers than ever before. They have learned to commodify virtually all of the projects that they send to outside counsel. Whether they are deals or disputes, if they are not at the "bet the company" level, then it is possible to manage the risk presented by each matter in a reasonable manner.

The difference between the attorney who is good enough and the attorney who is the best is probably not sufficient in the overwhelming number of instances to justify the premium for the superlative choice. It may not even be possible to determine readily in advance who that happens to be other than by reputation.

Accordingly, clients have decided they won't pay for training of junior lawyers or excessive overhead. While they didn't want to do that before either, they have the advantage in bargaining now -- and it will persist thanks to excess supply and slack demand.

Their refusal to allow recent graduates to handle their files might be short-sighted, because eventually there won't be anyone with sufficient experience in the pipeline. Clients will not be deterred from shifting the cost of radical restructuring of the business model. Somebody else will be forced to pay for the requisite mentoring.

The acknowledgment that high-quality services can be delivered without a fancy address is made all the easier by the ability to retain people over videoconferencing, email, and telephone. An impressive lobby ensures only that additional rent will be added to the bill. Nowadays, professional relationships can flourish without significant personal interaction. For all the client cares, the lawyer is performing excellent work at home in a bathrobe.

Outside counsel complain that they are being second-guessed by auditors, or, worse, computer programs, on how they spend their time. In-house counsel reply that as rates have surpassed the thousand dollar per hour mark, they would be foolish to be any less attentive to what exactly happened in any given six minutes that were charged to them. Through alternative fee arrangements, clients can transfer risks to their lawyers. Only a few can still recall, wistfully, the old-fashioned billing statement which said "services rendered" next to a sizable sum.

Second, technology is proving as revolutionary for the bar as it is for everyone else. A generation ago, a new litigator at a major law firm likely would be assigned early on to do pre-trial "discovery" -- specifically, "document review." That meant looking through boxes of paper for certain keywords such as the names of the parties. A squadron of associates would be sent from their nice offices to a windowless lower floor, where they would sit at desks for days, billing for every moment of their consciousness. The least lucky among them might have been shipped out to a warehouse archive that looked like that government storage facility at the end of the first Indiana Jones movie except there was no Ark of the Covenant to be found inside a dusty container.

Now, millions of email messages can be scanned, converted to text using OCR software, uploaded to a secure location in the cloud, and then searched in literally seconds. A responsible lawyer will be drafted to oversee the process. The labor (and the cost) of a dozen lawyers for a dozen weeks has been reduced to a single lawyer in a day. Even a modest-sized firm can afford the innovation.

What technology giveth, it taketh away. As digital search has become possible, the mass to be searched has increased to keep pace -- someone must have come up with a witty formula to express the relationship between our ability to organize data and the increase in its quantity, but ironically I am ignorant of it. Technology also has made legal practice more complex and faster- paced. The lawyer of today must be better than the lawyer of yesterday as the athlete of today must be better than the athlete of yesterday.

Third, legal process outsourcing has been proven feasible. It is transformative. "Outsourcing" is not even the right term. Outsourcing, sending tasks that were carried out by an employee inside a firm to an independent contractor beyond its formal structure (whether overseas or domestic), is symbolic of much else.

Legal services can be unbundled and repackaged and then performed by people of varying skill levels with permanent specializations and different career trajectories in multiple physical locations. As a consequence, the firm itself can be configured creatively. There is no necessity to set up a system that presents a linear path with lockstep compensation from associate to partner (meaning an actual owner of equity in the operation). Instead, it is possible to plug people into slots as needed.

Competition once was limited by guild rules masquerading as ethical norms -- no advertising, etc. There are no constraints anymore.

Even lawyers who have a credible claim to being at the top of their field are pitching for business constantly. Lawyers compete with accountants, consultants, and financial advisors, not to mention do-it-yourself manuals and websites. For high-end legal advice, Anglo-American firms still have an advantage, but there is no reason to suppose that it will be more durable than it has proven with, say, the manufacturing of luxury automobiles.

For the individuals willing to adapt, however, there could be no better time to reform the law firm. Boutiques and virtual firms are only the beginning of profound changes to come. There almost certainly always will be the legacy firms who by virtue of their prestige, earned or otherwise, serve the few who remain willing to pay their fees while offering opportunities to those who wish to play their tournament. For the bulk of the work to be done, a new type of lawyer will evolve to do it.

It is up to us in the academy to prepare our students for the future no matter what it holds.

http://lawprofessors.typepad.com/law_deans/2014/02/dean-frank-wu-on-what-threatens-law-firms.html

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