May 12, 2012
LegalZoom Files for IPO
LegalZoom plans to go public. According to the company's Form S-1 registration statement, which was just filed with the SEC, the company had $156M in revenues in 2011, with profits of $12 million. Here is the first line of the prospectus:
We believe that everyone deserves access to quality legal services so they can benefit from the full protection of the law. Our mission is to be the trusted destination where small businesses and consumers address their important legal needs and to be our customers' legal partner for life.
Well, LegalZoom seems to be making progress.
We have served approximately two million customers over the last 10 years. In 2011, nine out of ten of our surveyed customers said they would recommend LegalZoom to their friends and family, our customers placed approximately 490,000 orders and more than 20 percent of new California limited liability companies were formed using our online legal platform. We believe the volume of transactions processed through our online legal platform creates a scale advantage that deepens our knowledge and enables us to improve the quality and depth of the services we provide to our customers.
I recently rented a car on a business trip. The radio was tuned to the Jim Rome Show, a national sports radio talk show that is carried by more then 200 stations nationwide. During my two hour drive, I heard at least four LegalZoom radio commercials.
What is LegalZoom's long term play? Based on the S-1, it is to use its trusted brand to build a network of "legal subscribers" who obtain legal advice from licensed attorneys. As LegalZoom says,
We are not a law firm, and we do not provide legal advice. We provide self-help legal documents at our customers' specific direction and teneral information on legal issues generally encountered. Independent, licensed attorneys participate in our attorney network to provide services to our customers through our legal plans.
LegalZoom is seeking $120M for general corporate purposes. Sheppard Mullin and Latham & Watkins are listed on the S-1 registration statement. Think LegalZoom is no big deal? If so, I would encourage you to read my previous post.
[posted by Bill Henderson]
Lots of Jobs for Law Graduates -- just not Grads in the U.S.
This story is fresh off the newswire: "Law firms are no more the preferred destination for fresh law graduates looking for jobs. With outsourcing catching up even in this industry, legal process outsourcing (LPO) companies are now bagging a large number of graduates." A law professor opines, “There is a rising trend of students opting for LPOs. The nature of work is changing and these places offer good packages and work culture. ... [P]romotions also come faster in LPOs.”
Wonderful news. But the story was written for the Hindu Business Line. The law graduates went to school in India. Why are the LPOs become more attractive jobs for Indian law grads? Probably because (a) LPOs are increasingly focusing on process and technology, engineering out the drudgery work, and (b) process and technology are creating a sustainable competitive advantage within a global industry -- and that can support higher salaries.
Dalal explains his hiring philosophy: "There are very few lawyers available in India who are experts in the laws of the US or the UK, which constitute a bulk of our clients. In general, therefore, we prefer to hire younger legal talent, whether fresh or a few years out of Indian law schools." (Historical note: Paul Cravath explicitly focused on new law school graduates in building his firm. Why? He did not want to undo the bad habits and fixed ideas of other (inferior) employers -- he too had a process.)
The president of Mindcrest is a former partner at McGuireWoods, an AmLaw 200 law firm. According to its website, Mindcrest now has 600 employees. How many are in the U.S.? We have no idea -- but we can triangulate data from other sources in order grasp the magnitude of changes occurring as a result of companies like Mindcrest..
So consider the following, which I believe signals a true structural shift.
Chart 1 below is generated from County Business Patterns data. It summarizes U.S. Law Firm employment according to the North America Industry Classification System (NAICS), which is how the U.S. Census Bureau groups and categorizes economic activity. The NAICS went into effect in 1998, replacing the Standard Industrial Classification (SIC) system, which reflected an industrial economy rather than one driven by information and services. The advantage of County Business Patterns (CBP) is that it is not a sample -- it is "universe" data. CBP covers everyone working in the U.S. who received a W-2. Law firms, as shown below, comprise a 1.1 million employee sector. [click on to enlarge]
The key takeway? Law office jobs peaked in 2004 -- four years before the collapse of Lehman Brothers. Total employment in law offices (NAICS 54111) totaled 1,123,000 jobs, which was 92.2% of the larger legal services sector (NAICS 5411). Since the high water mark in 2004, the sector shrank by 26,100 jobs (at least through 2009).
County Business Patterns, however, has another catch-all category called "all other legal services" (NAICS 541199). Mindcrest's employment (just the domestic) is almost certainly included in this catch-all. Chart 2 below compares change in total employment from base year 1998 for "Law offices" and "All other legal services." [click on to enlarge]
The takeaway from Chart 2 is that "All other legal services" is growing very quickly, albeit from a much smaller base. When Law offices were shedding 26,100 jobs after the 2004 high water mark, the "All other legal services" category added 5,800 new employees. It is worth noting that the average 2009 salary in All other legal services are 40% lower than in law firms ($46,800 versus $78,500). [more after fold]
Between 1998 and 2009, the "All other legal services" category grew from 1.0% of the Legal Services Sector in 1998 to 1.9% in 2009, essentially doubling in importance and more than doubling in absolute employment. The CBP data are collected in March of each year. So the data in the public domain is now over three years old. (The 2010 CBP data will be released next month.) If the 30% growth rate is correct, the "All other legal services" sectors could be 3-4% of the U.S. legal service market. As this category becomes bigger, the Census Bureau will examine all the companies in the catch-all category and create new classification bins. LPOs are likely to be but one new category.
Based on the large number of legal services vendors that I have met over the last two to three years -- only a subset were LPOs like Mindcrest-- and the general growth and vitality of their businesses -- most financed by nonlawyer money -- I would be surprised if the black line in Chart 2 did not continue along at a 30% per annum clip. Further, keep in mind that the black line is only the domestic component of a global supply chain.
If we play 30% growth over a 10-year period, the total employment increases by a factor of 13.8 (in other words, take whatever total employment is, and multiply it by 13.8). So, applying that factor to the 21,600 employment in "All other legal services" in 2009 would equal 300,000 in 2019. Granted, a large portion of these jobs would not show up because the employment opportunities will be increasingly in places like India. Further, technology may curtail overall growth of even Indian legal jobs. But here is the bottomline -- under all scenarios, the number of traditional jobs for U.S. law school graduates will almost certainly stagnant or decline.
For lawyers and law professors, our cheese is being moved. Over the last three years, I have given several dozen structural change talks. Many lawyers tend to view it with skepticism or a desire to just run out the clock. The law professors tend to treat it as just another academic workshop. Regrettably, we have conditioned ourselves to believe that all ideas and data we discuss are just that -- academic. In contrast, just this week, two general counsel of growing and important technology organizations told me -- largely in passing, not to make a point -- that Indian lawyers living in India are a regular part of their global work teams.
The longer we ignore this, the more foolish we will look. Legal service vendors, again financed by the nonlawyers, are now in the process of taking over larger portions of the global supply chain; and thanks to technology and process, the work is destined to be lucrative. Within a decade, a nonlawyer will be heralded in The American Lawyer for inventing a legal process. And many U.S. law schools will shrink in size and eventually close. Why? Because what we teach is increasingly disconnected from how law is being bought and managed by clients. This is what structural change is eventually going to look like.
[posted by Bill Henderson]
May 10, 2012
What Do Dewey & LeBoeuf Partners Owe Their Staff?
A story in the Am Law Daily has a chilling quote from a soon-to-be ex-Dewey & LeBoeuf employee. "I've been here 14 years," she said. "They never apologized. They never explained what was going on to us. It's very disrespectful to the staff. It's always about the lawyers. It's never about the staff."
What do Dewey & LeBoeuf partners (and recent ex-partners) owe their staff? I’m not talking about technical calculations based on the federal WARN law. I am talking basic principles of human decency that have to be followed in order to look one's self in the mirror each morning—what our non-professional parents or grandparents would tell us to do.
I suspect that 95% of people (and lawyers, who are people too) would sign on to this list:
- Guarantee the timely distribution of all paychecks and corresponding 401K contributions
- Guarantee the eventual payment of unused vacation and personal time
- Explain the status of health insurance and prevent any interruption in coverage
- Say “I am sorry this is happening to you. We wish we could rewind the clock and do things differently so we could have avoided these problems for you and your families."
The reality, however, is near the opposite. No apology. No explanations. And an eventual bankruptcy filing that will convert hundreds of longtime Dewey & LeBoeuf staffers into unsecured bankruptcy creditors who will likely have to hire a lawyer to get a percentage of what they are actually owed.
If (rich) Dewey & LeBoeuf partners seem to be falling short, it is all-too-easy to chock up this behavior to greed and moral failure--and I am sure this behavior will be amply recounted in the final Dewey & LeBoeuf post-mortem. Yet, moral fortitude is no match the sheer size and geographic dispersion of the Dewey & LeBoeuf partnership. As a simple matter of logistics, it is near impossible for the firm's most well-meaning partners to coordinate an effective plan for treating all the staff fairly.
A story in the New York Times (here) reports on an ex-partner who is starting a fund to assist staffers, apparently seeding it with $10,000. His moral impulse is spot on. But the task of fully delivering on the impulse is pretty staggering. Some questions:
- Are all the partners kicking in, or some? Many Dewey & LeBoeuf partners have probably never met each other—what a task!
- If I am a partner, how much is this going to cost me? Well, it depends upon who steps up and on what terms.
- Are the partner contributions pro rata or proportional to income and status in the firm? Apparently, the true incomes of Dewey & LeBoeuf partners was a deep mystery, though the differential reportedly approached 20 to 1. What is fair is at odds with what is workable.
- Every Dewey & LeBoeuf staffer, not just the ones who worked with me? Dewey & LeBoeuf had 1,000 non-lawyer employees. The needs, obligations and liabilities could run into the tens of millions.
- Who has all the information on employee benefits, and who is going to pay that person to calculate all the payouts and communicate with staffers?
Somewhere between question 1 and question 4, most of us would conclude that were embarking on a fool’s errand—we, and our families, would drown in the task of helping others. So we would put our heads down and focus our own situation. And despite a pounding conscience, the less advantaged are left holding the bag on a mess that, objectively, the lawyers created.
Ironically, this disgraceful state is a byproduct of several decades of prosperity and growth. And its unraveling perfectly parallels the voice, exit and loyalty framework articulated by the famed economist Albert O. Hirschman in his 1970 book, Voice, Exit and Loyalty. The framework runs roughly as follows.
In relatively small organizations or communities, problems and disagreements can be resolved through voicing one’s concerns to fellow stakeholders. Further, if exit is expensive or impracticable, voice is the only option. Ideally, dialogue and cooperation ensue, thus benefiting all parties and producing a reservoir of loyalty.
In larger organizations, however, a governance structure based on voice can be too messy and time consuming, so decisions are delegated to smaller group. Unwise or imprudent decisions are curtailed by the exit or the threat of exit by key stakeholders. So exit can produce quite stable and healthy organizations. Yet, when leadership fails to take corrective action in response to exit, the organization can slowly, or quickly, self-destruct.
Today, virtually every firm in the Am Law 200 operates on exit principles as expressed in the market for lateral partners. In the case of Dewey & LeBoeuf, the most significant shock to the system was the realization within the partnership that the firm’s leadership had failed to level with them regarding the financial health of the organization. The firm was long past the point where an out-of-use voice could serve as a corrective (26 offices, 10 countries!). Further, the reservoir of loyalty had run dry. So the partners rushed for the exits.
Ironically, many Dewey & LeBoeuf staffers probably took solace in working for an old-line prestigious law firm with international offices; they inferred they were safe. Now they are collateral damage, treated with less respect than the staff of Big Box store closing in an aging suburb.
What happened at Dewey & LeBoeuf could happen at any Am Law 200 law firm, albeit some have deeper reservoirs of loyalty than others. I worry that the so-called “elite bar” has given up on voice, or is woefully out-of-practice in speaking openly and frankly to those with power. Further, I worry that too many Am Law managers only listen to the views of rainmakers. That is especially pernicious if the rainmakers are overpaid, as they appeared to be at Dewey & LeBoeuf, because the exit of the rank-and-file lawyers can also destroy a firm.
Regardless, all of us lawyers need to take note of the deplorable treatment of the nonlawyers in the building--hundreds of people who kept the enterprise running and contributed to the professional treatment of clients. The treatment of the Dewey & LeBoeuf staff (or Howrey a year earlier, or Brobeck or Heller) is utterly incompatible with self-image of an elite, prestigious law firm. Increasingly, we are confusing profitability with estimable conduct. The evidence is indisputable that this error in judgment destroys firms and destroys lives.
[posted by Bill Henderson]
May 7, 2012
Cassidy on Legal Education Reform
R. Michael Cassidy (Boston College) has posted Beyond Practical Skills: Nine Steps for Improving Legal Education Now on SSRN. Here's the abstract:
It has been five years since the Carnegie Report “Educating Lawyers” called upon law schools to adopt an integrated approach to professional education that teaches practical skills and professionalism across the curriculum. Yet so far, very few schools have responded to this clarion call for wholesale curricular reform. Considering the inertial effect of traditional law school pedagogy and the institutional impediments to change, this delay is not surprising. A fully integrated approach to teaching professional skills (such as the medical school model) would require major resource reallocations, realignment of teaching responsibilities, redesign of courses, and a change to graduation requirements. While I fully support such comprehensive reform, the pragmatist in me knows that it will take years to accomplish.
My goal in this essay is to offer a “self-help” remedy for faculty members and administrators interested in responding to the Carnegie Report’s call for greater emphasis on experiential education, but uninterested in waiting for the committee deliberations, reports, faculty votes, and tough resource trade-offs that lie ahead. We drag our heels at our own perils, and to the serious disadvantage of our current students. What follows is a description of nine changes that individual faculty members and deans can make now to improve the professional education of law students. While each initiative when viewed in isolation may seem modest, collectively they could have a huge impact on our programs.
Speculation on Sensitivities in the Law Profession Employment Data
Posted by Jeff Lipshaw
I like to think of myself as a sophisticated theorist, not a fantasy writer. So when I was asked a few days ago to participate in an upcoming law review symposium about the future of legal education, and not wanting to embarrass myself (a driving factor for most of my life), I started digging into the empirical and interpretive work developed over the last couple years on the future of the profession.
Gallons of ink have been spilled, myriad symposia convened, and quadrillions of pixels manipulated in speculation, condemnation, excoriation, bloviation, justification, rationalization, perspication, and horribilization. Nevertheless, I feel data deprived.
Something Frank Bowman (Missouri, right) said in a thoughtful post yesterday over at Concurring Opinions gave me pause, because it highlights what my empirical guru Bill Henderson tells me is a glaring gap in the data. If I can paraphrase, one of Frank's points is that there is a group of elite schools at the top of the food chain that, by reason of money, brand, and intellectual capacity of their students, are going to come out of all of this relatively unscathed. "But this model cannot work for the rest of us."
I know for a fact that Big Law is changing rapidly. I only have to read the newspapers and look at the data Bill has sent me about a disappearing breed: the home-grown Big Law partner. That's not where the data gap lies.
What we don't seem to know much about through data rather than speculation (my own included) is how the profession is shrinking or changing (or not) when we get below that level. That is, I would really like to see more precise sensitivities in the data, because my intuition is this is not "one size fits all." Frank counts 20 to 30 schools as "at liberty to change or stand pat, as it suits them." I don't know where the line between "them" and "the rest of us" gets drawn, but the data would tell us generally where to find the largest marginal impact on the effect of Big Law shrinkage. My guess is that it would be in those schools that are wannabes for elite national school status.
But I am still really foggy about what is happening farther down the food chain, and Bill tells me I have reason to be. What is happening to the profession outside of Big Law, and what is happening to the schools that primarily feed that segment of the profession? Let's take Big State University Law School (Quaint College Town Campus) with say, 250 students in each graduating class, and posit that it is the flagship school in the state, relatively remote from any major competitive elite public or private law school, able to offer instate tuition to its residents, but still only ranked somewhere between 50 and 100 in USNWR. No doubt it feeds a small number of its grads, even now, to Big Law, and some to medium sized sophisticated firms in Big State City, down the road.
But what is happening to the rest of BSUSL's grads, and how has that changed over the last ten years (i.e. comparing pre-financial crisis)?
I overlapped for a short time in 2005 at Big State (Urban Campus) Law School with Frank (when he was a real professor and I was just a superannuated general counsel-practitioner-adjunct prof with academic aspirations). Even in 2005, before the crunch, I was asking questions about BS(UC)LS, which graduated 400 lawyers a year in its day and evening programs. Even then, I bet that no more than 5-10% (tops!) got either Big Law or even the Big State City version of Big Law jobs (i.e., solid regional firms). I remember asking the deans at BS(UC)LS in 2005 - what happens to the bottom half of your class of 400 lawyers? Or the bottom 25%?
There is an entire industry of law schools not even trying to place students in Big Law - for them, at best if they get a few in it is a victory. That seems to me to suggest a likely different impact as a result of the financial crisis.
If we were to look at the top students in those schools longitudinally (say over the last seven years), how have they been affected? Then if we look at the bottom 60-75% of the class, how about them? Are graduates at that level significantly impacted? Where are they going? Has the world changed much for them?
That's the data gap about which I'm inordinately curious. Feel free to fill me in if you have answers.