Tuesday, August 4, 2015
In a recent post, I urged readers to visit a legal department with a large legal operations staff. The goal? To see the future of modern corporate law practice. Fortunately, Bloomberg Law recently videotaped a legal ops panel moderated by Amar Sarwal of the ACC. It contains a conversation rarely if ever heard in law schools or bar associations.
The three legal departments profiled are AIG (insurance), Marsh & McLennan (diversified financial and professional services), and GlaxoSmithKline (pharma). Note the enormous emphasis on metrics, data, and technology. Note also how the services of law firms are being put through a procurement process.
Wednesday, July 22, 2015
If you're trying to maximize the financial value of an undergraduate degree, it is better to bet on course of study than college prestige. Indeed, prestige is largely irrelevant to those who major in engineering, computer science, or math. In contrast, prestige does matter for art & humanities grads, albeit the financial returns are significantly lower than their tech counterparts.
These are some of the takeaways from Part I of this blog post. Part I also presented data showing that law is a mix of both: financial returns have been high (cf. "red" tech majors) and prestige matters (cf. "blue" arts & humanities crowd).
The goal of Part II is to address the question of whether the pattern of high earnings/prestige sensitivity will change in the future. I think the answer to this question is yes, albeit most readers would agree that if law will change is a less interesting and important question than how it will change. Speed of change is also relevant because, as humans, we want to know if the change is going to affect us or just the next generation of lawyers.
Shifts in the Legal Market
There are a lot of changes occurring in the legal market, and those changes are altering historical patterns of how legal services are being sold and delivered to clients. In the past, I have thrown around the term structural change, yet not with any clear definition. To advance the conversation, I need to correct that lack of precision.
In economics, there is a literature on structural change as applied to national or regional economies (e.g. moving from a developing nation to an industrial nation; or moving from an industrial to a knowledge-based economy). Investors also focus on structural change within a specific industry because, obviously, large changes can affect investor returns. When I have used the term structural change on this blog, it has been much closer to investor conceptions. Investopedia offers a useful definition even if it's somewhat colloquial:
Definition of 'structural change': An economic condition that occurs when an industry or market changes how it functions or operates. A structural change will shift the parameters of an entity, which can be represented by significant changes in time series data.
Under this definition, the legal industry is certainly undergoing structural change. The proportion of law graduates getting a job in private practice has been on the decline for 30 years; over the last 35 years, the average age of the licensed lawyer has climbed from 39 to 49 despite record numbers of new law school graduates; the proportion of associates to partners has plummeted since the late 1980s. See Is the Legal Profession Showing its Age? LWB, October 12, 2014. Since the early 2000s, long before the great recession, associate-level hiring has been cut in half. See Sea Change in the Legal Market, NALP Bulletin, August 2013.
Likewise, among consumers of legal services, there is a lot of evidence to suggest that lower and middle class citizens can't afford a lawyer to solve life's most basic legal problems, thus leading to a glut of pro se litigants in state courts and many more who simply go without things like contracts and wills. This troubling trend line was obscured by a boom in corporate legal practice, albeit now even rich corporations have become more sensitive to legal costs -- the sheer volume and complexity of legal need is outstripping their budgets. In response to the lag in lawyer productivity and innovation, there is a ton of investor-backed enterprises that are now elbowing their way into the legal industry. See A Counterpoint to "the most robust legal market that ever existed in this country", LWB, March 17, 2014.
The impact of all this change -- structural or otherwise -- is now being felt by law schools. Applicants are down to levels not seen since the 1970s, yet we have dozens more law schools. It has been said by many that law schools are losing money, albeit we have zero data to quantify the problem. Based on my knowledge of my own law school and several others I am close to, I am comfortable saying that we have real changes afoot that affect how the legal education market "functions or operates."
There is a sense among many lawyers and legal academics that the legal world changed after 2008. None of the "structural" changes I cite above are pegged in any way to the events of that year.
What did change in 2008, however, was the national conversation on the legal industry, partially due to the news coverage of the mass law firm layoffs, partially due to important books by Richard Susskind and later Brian Tamanaha and Steve Harper, and partially due to a robust blogosphere. This change in conversation emboldened corporate legal departments to aggressively use their new found market power, with "worthless" young associates getting hit the hardest. This new conversation in turn exposed some of the risks of attending law school, which affected law school demand. But alas, this was all fallout from deeper shifts in the market that were building for decades. Let's not blame the messengers.
Dimensions of Change
I am confident that the future of law is going to be a lot different than its past. But I want to make sure I break these changes into more discrete, digestible parts because (a) multiple stakeholders are affected, and (b) the drivers of change are coming from multiple directions.
Dimension 1: basic supply and demand for legal education
To unpack my point regarding multiple dimensions, let's start with legal education. Some of the challenges facing law schools today are entirely within the four corners of our own house. Yet, legal education also has challenges (and opportunities) that arise from our connection to the broader legal industry. This can be illustrated by looking at the relationship between the cost of legal education (which law schools control, although we may blame US News or the ABA) and entry level salaries (which are driven largely by the vagaries of a client-driven market).
The chart below looks at these factors. My proxy for cost is average student debt (public and private law schools) supplied by the ABA. My income variables are median entry level salaries from NALP for law firm jobs and all entry level jobs. 2002 is the first year where I have all the requisite data. But here is my twist: I plot debt against entry-level salary based on percentage change since 2002.
If a business nearly doubles its price during the same period when customer income is flat, demand is going to fall. Thus, the sluggish entry-level market presents a difficult problem for legal education. Sure, we can point to the favorable statistics from the AJD or the premium that a JD has historically conferred on lifetime earnings, but law professors are not the people who are signing the loan papers. The chart above documents a changing risk/reward tradeoff. To use the frame of Part I, the red dots are sinking into the blue dot territory, or at least that is the way prospective students are likely to view things.
Fortunately, smaller law school classes are going to be a partial corrective to low entry-level salaries. The biggest law school class on record entered in the fall of 2010 (52,488); in 2014, the entering class had shrunk by over 27% (37,942). When entry-level supply is reduced by 25+%, upward pressure on salaries will build. Yet, the composition of the legal economy and the nature of legal work is clearly changing. Further, the rate of absorption of law school graduates into the licensed bar has been slowing for decades. See Is the Legal Profession Showing its Age? LWB, October 12, 2014. It would be foolhardy to believe that time and fiscal austerity alone are going to solve our business problems. Instead, we need to better understand our role as suppliers to a labor market.
Dimension 2: The content of legal education
The content of legal education is not necessarily fixed or static. We could change the content, thus affecting how the market responds.
To provide a simple example, one of my students is starting work this fall at Kirkland & Ellis. From a financial perspective, this is a good employment outcome. He will be moving to Chicago with his girlfriend who just received her MS in Information Systems from IU's Kelley School of Business. The MS from Kelley is a very "red" degree. It can also be completed in one year (30 credit hours). Well before she graduated, this recent grad had competing offers from PWC and Deloitte, both in the $80,000 range. For many Indiana Law students, an ideal post-grad outcome would be $80K in Chicago at an employer who provides challenging work and high-quality training. Yet, my student's girlfriend got this ideal outcome in 1/3 the time and likely 1/2 the cost of an Indiana Law grad.
Perhaps we should consider cross-pollinating these disciplines. A huge portion of the legal profession's economic challenges is attributable to flat lawyer productivity -- customers are struggling to pay for solutions to their legal needs. Information systems are a huge part law's productivity puzzle. Below is a chart I use in many of my presentations on the legal industry. The chart summarizes the emerging legal ecosystem by plotting the Heinz-Laumann two-hemisphere model against Richard Susskind's bespoke-to-commodity continuum. [Click-on to enlarge.]
The key takeaway from this diagram is that the largest area of growth is going to be in the multidisciplinary green zone -- the legally trained working shoulder-to-shoulder with those skilled in information systems, statistics, software development, and computational linguistics, to name but a few. These are "red" disciplines. Do law schools want to be part of this movement? Let me ask this another way -- do law schools want to be relevant to the bulk of the legal market that needs to be rationalized in order to maintain its affordability? Harvard grads will have options on Wall Street for the foreseeable future. But 98% of law schools operate in a different market. Further, some HLS grads, or students who might qualify for admission to Harvard, might prefer the big upside rewards that are only available in the green zone. In short, a new hierarchy is emerging in law that is still very much up for grabs.
If an academic wants to better understand the rapidly changing nature of legal work, I would urge them to visit a large legal department with a substantial legal operations ("legal ops") staff. These are the professionals who have been empowered by general counsel to find ways to drive up quality and drive down cost using data, process, and technology. These are the folks who are making build-versus-buy decisions, putting pressure on law firms to innovate in order to hang on to legal work, and experimenting with NewLaw legal vendors.
I am finishing up a story on legal ops professionals for the ABA Journal. (By the way, legal ops exist in law firms as well as legal departments and green zone legal vendors. The role is most developed, however, in legal departments.) My editor flagged the issue that virtually all of the legal ops people in the story did not graduate from prestigious law schools (or any law school).
My only response is that legal operations people have specialized skills and knowledge (often "red" but sometimes involving EQ) that others lack; without these skills, they can't do the job. Legal ops people live in a world of outputs and metrics. For example, are legal expenses and settlement amounts trending down over time -- yes or no? If so, by how much? How much internal staff time does it take to negotiate a revenue contract? How much of this process can be automated? What will it take to get our staff to accept the new system?
As these examples show, a legal ops person is typically going to be evaluated based on measurable outputs -- do they get results? Where someone went to law school is an input that is likely irrelevant to the question. The only qualifier is whether the curriculum of that school provided valuable, specialized domain knowledge -- most likely non-legal red skills but also skills related to teams, communication, and collaboration.
Dimension 3: The value of pedigree to the customer
Law has historically been what economists call a “credence good.” This means that a layperson has a difficult time assessing quality. As a result, proxies for quality, such as pedigree or prestige, have historically been very important when hiring a lawyer or law firm.
One of the reasons that the field of legal operations is gaining momentum is because it is creating tools and systems that enable clients to look past credentials to obtain information on things they really care about, such as cost, outcome, and speed of delivery. There are now companies coming into existence that are gathering data on lawyers' win-loss rates. See Another Example of Using Big Data to Improve Odds of Winning in Court, LWB, April 12, 2015. Sure, apples-to-apples comparisons are very difficult to make -- every case is unique in some respect. But the amount of money at stake is large enough that the data challenges will be surmounted. When that day arrives, we won't opine on the value of pedigree to legal outcomes; we'll just calculate it. More significantly, clients focused on outcomes will change their buying patterns. Early returns I have seen suggest that the value of pedigree to legal outcomes may be close to negligible.
Do any of us care where the engineers who designed our smart phones went to college? Not really. We just care how well the smart phone works.
In this respect, the future of law is likely headed in the direction of Google (a pure red company). In the early days, the founders of Google favored grads of Caltech, Stanford and Berkeley. But over time, the company learned that prestige of graduate school was a poor predictor of job success. Because Google lives and dies by its outputs, the company changed its hiring model to attract the most qualified engineers. See George Anders, The Rare Find: How Great Talent Stand Out 1-5 (2012) (telling the story of how data changed the attitudes of Google founders regarding elite credentials and altered the Google hiring model).
I have lived long enough to know that the changes I describe above are not necessarily going to be welcomed by many lawyers and law professors. If a group benefits from a lifelong presumption of merit, it is natural that group will resist evidence that the presumption is not fully warranted. Indeed, much of the skepticism will be rooted in subconscious emotion. If the presumption is dashed, those of us in the elite crowd will have to spend our days competing with others and proving ourselves, or even worse, watching our kids soldier through it. We have little to gain and a lot to lose in the world we are heading into. Yet, behind the Rawls veil of ignorance, how can we complain?
So with the red-blue crosscurrents, is law school still worth the investment?
That is a relevant and reasonable question that many young people are contemplating. I will offer my opinion, but markets are bound to follow their own logic.
This is a time of enormous uncertainty for young people. Education clearly opens doors, but tuition is going up much faster than earnings. Further, competition among knowledge workers is becoming more global, which is a check on wages. Of course, if you don't invest in education, what are your options?
I am generally on the side of Michael Simkovic and Frank McIntrye that the education provided by a law degree, on average, significantly increases lifetime earnings. See The Economic Value of a Law Degree (April 2013). How could it not? The law is too interconnected to every facet of society to not, on average, enhance the law grad's critical thinking skills. Nearly 15 years of out of law school and I regularly use what I learned at Chicago Law to solve problems and communicate solutions, particularly in my applied research work with law firms and legal departments. While my Chicago Law credential has value independent of the skills and knowledge I obtained (the red AJD bar chart in Part I strongly suggests that), I can't deny the additional value of the actual skills and knowledge I obtained to solve real world business problems. It's been substantial.
In general, I also agree with Deborah Jones Merritt that there is significant evidence that the entry-level market for lawyers is weak and oversaturated. See What Happened to the Class of 2010? Empirical Evidence of Structural Change in the Legal Profession (April 2015). The class of 2010 is not faring as well as the class of 2000. Indeed, the lead economist for Payscale, Katie Bardaro, recently noted that wages are stagnating in many fields, but especially in the legal profession. "More law schools are graduating people than there are jobs for them...There’s an over-saturated labor market right now. That works to drive down the pay rate.” See Susan Adams, The Law Schools Whose Grads Earn the Biggest Paychecks in 2014, Forbes, Mar. 14, 2014.
In the face of these stiff headwinds, I think law schools have an opportunity to pack more value into three years of education. See Dimension 2 above. To be more specific, if you are a protege of Dan Katz at Chicago-Kent, you will have a lot of career options. Ron Staudt, also at Chicago-Kent, has quietly built a pipeline into the law and technology space. Oliver Goodenough and his colleague at Vermont Law are making rapid progress with a tech law curriculum. And at Georgetown Law, Tanina Rostain and Ed Walters (CEO of Fastcase) provide courses that are cutting edge.
But absent these types of future-oriented instruction, what is the value of a JD degree as it is commonly taught today? That value is clearly positive; I would even call it high. But whether the value is sufficient to cover the cost of attendance is likely to vary from law grad to law grad. Lord knows, in a world of variable tuition based on merit scholarships and merit scholarships that go away after the 1L year, the swing in cost can be a $250K plus interest.
What is killing law school applications these days is the lack of near certainty among prospective students that the time and expense of law school will pay off. The world looks different than it did in the fall of 1997 when the vast majority of the AJD respondents entered law school. Tuition and debt loads are higher and high paying entry-level jobs are harder to obtain.
So what is the solution? For students, it's to bargain shop for law schools, which is bad news for law schools. For law schools, it's to add more value to an already valuable degree. Some of that value will come in the form of red technical skills that will make lawyers more productive. In turn, this will prime demand for more legal products and services.
Sunday, July 19, 2015
The Economist reports a very interesting analysis from Payscale. The questions being asked are pretty simple: If you want to generate earnings that justify the time and cost of an undergraduate education, what should you study and where should you enroll?
Lots of people have strong opinions on this set of questions, but Payscale has the data to answer them empirically. It turns out that at the undergraduates level, course of study is much more important than the prestige of the college or university you attend. The hard evidence is shown below.
For those working in law or thinking about attending law school, a natural question to ask is whether the legal industry is closer to the blue dot (art & humanities) or red dot pattern (engineering/CS/math). A second, related question whether the future of law is more blue or more red.
This a two-part blog post. Part I tries to answer the first question, starting with a careful analysis of the undergraduate chart, which provides a valuable frame of reference that can be discussed more dispassionately (at least among lawyers and law students) than an analysis that questions the value of law school prestige and hierarchy.
Part II, which I will post on Wednesday, explores the second, future-oriented question. I will tip my hand now and say that the future of law will be less blue (arts & humanity) and more red (math/CS/engineering). Within the legal industry, there will be winners and losers; but from the perspective of broader society, this change is a very good thing.
In the Payscale chart above, the y-axis (vertical) is 20-year annualized returns from college fees paid. The x-axis is selectivity, running from under 10 percent to near open admissions.
The Payscale chart is a very good example of how data visualization can be used to communicate both core facts and useful nuance. Here, the lede is unmistakable: the red dots (engineering/CS/math) are overwhelming higher on the ROI scale than the blue dots (arts & humanities). Sure, there are exceptions to this rule, but they don't occur very often. (Observe how rarely a blue dot is above the red fit-line.) This suggests it would be very foolish to get a blue degree and expect a red paycheck unless you have very good information (or skills or talent) that others lack.
The chart conveys another important piece of information -- the red fit-line is flat. This means that for engineering/CS/math majors, prestige has not been very relevant to their eventual earnings. I'll add a nuance here that some empirically savvy readers are bound to point out: It is possible (indeed likely) that fees are higher at more selective schools. So if MIT costs twice as much as a public polytech, and both yield 12% over 20 years, one might wish they had gone to MIT. Still, the flat trendline is surprising. As a general matter, lower ranked schools are not dramatically cheaper than higher ranked schools, and many public schools are highly selective. The flat red trendline suggests that there are (or were, remember these are historical data) many bargains out there. If one is trying to maximize financial returns, the goal is to find a school that will, in the future, be well above the red fit-line (and avoid those below).
The flat red fit-line is also surprising because college selectivity is almost certainly highly correlated with ACT or SAT scores, which our society often views as measures of general intelligence. Yet, there we have it -- a flat trendline. Four years of education seem to be more relevant than a standardized test score taken during high school. That is heartening at many levels.
A third interesting trend -- the blue fit-line is sloped downward. This suggests that in the arts & humanities, selectivity/prestige does have a financial payoff. I don't think this will surprise many readers, albeit the prestige payoff is not very large. To use a simple metaphor, if you attend a more selective college or university to get your arts or humanity degree, you are likely to have a better house in the arts & humanities neighborhood. But on average, you won't be able to afford the same neighborhood as the engineers, computer scientists, and math majors.
What about Law?
Moving on to law, if we want to examine the relationship between earnings and law school attended, the best available evidence is probably the After the JD Study (AJD), which is large, representative sample of law graduates who took and passed the bar in 2000.
Data from AJD Wave 3 suggests that the financial returns are relatively strong for all law school graduates -- ten years out and graduates of Tier 4 schools have median earnings of $100,000 per year. As shown in chart below, this is akin to shifting the blue dots up into the red territory.
The downward sloping fit-line remains, but that doesn't seem to matter very much to happiness. Other AJD data shows that regardless of tier of graduating school, AJD respondents show relatively high and uniform satisfaction with (a) the decision to become a lawyer, and (b) the value of the law degree as an investment. By 2010, 48% of respondents had no debt; only 5.1% had more than $100K in educational debt remaining.
This is all good news. But is it reasonable to extrapolate forward and assume the past is a fairly accurate barometer of the present and the future?
One way to address that question is to ascertain what has changed since 2000. As noted earlier, the AJD sample was composed of law graduates who passed the bar in the year 2000. Figures published by NALP and the ABA show that the percentage of full-time bar passage required jobs has dropped significantly over the last 13+ years -- from 77.3% for the class of 2000 to 57% for the class of 2013. That is a huge delta.
One of the reasons why law school applicants have plummeted is that the career path from JD graduates has become murky. And that is a good place to start Part II.
Thursday, September 4, 2014
Plexus, a NewLaw law firm based in Australia, has just released a new legal product that purports to apply artificial intelligence to a relatively common, discrete legal issue -- detemining whether a proposed trade promotion (advertisement in US parlance) is in compliance with applicable law.
In the video below, Plexus Managing Partner Andrew Mellett (who is a MBA, not a lawyer), observes that this type of legal work would ordinarily take four to six weeks to complete and cost several thousand dollars. Mellett claims that the Plexus product can provide "a legal solution in 10 minutes" at 20% to 30% of the cost of the traditional consultative method -- no lawyer required, albeit Plexus lawyers were the indispensible architects for the underlying code.
From the video, it is unclear whether the innovation is an expert system -- akin to what Neota Logic or KM Standards are creating -- or artificial intelligence (AI) in the spirit of machine learning used in some of the best predictive coding algorithms or IBM's Watson applied to legal problems. Back when Richard Susskind published his PhD dissertation in 1987, Expert Systems In Law, an expert system was viewed as artificial intelligence--there was no terminology to speak of because the application of technology to law was embryonic. Now we are well past birth, as dozen of companies in the legal industry are in the toolmaking business, some living on venture or angel funding and others turning a handsome profit.
My best guess is that Plexus's new innovation is an expert system. But frankly, the distinction does not matter very much because both expert systems and AI as applied to law are entering early toddler stage. Of course, that suggests that those of us now working in the legal field will soon be grappling with the growth spurt of legal tech adolescence. For law and technology, it's Detroit circa 1905.
Sunday, August 24, 2014
Nashville, TN. It is time to put down the broad brush used to paint BigLaw as inefficient and out of touch. At least for me, that is the big takeaway from the 2014 International Legal Technology Association (ILTA) conference, which took place this past week at the Gaylord Opryland Hotel in Nashville and included nearly 2,000 lawyers, administrators, staff, and vendors from around the world.
My takeaway is based on what I saw during the presentation session for the ILTA Most Innovative Law Firm Award. The three finalists all qualify as big: Bryan Cave (985 lawyers), Seyfarth Shaw (779 lawyers), and Littler Mendelson (1002 lawyers). Presenters from each firm had 15 minutes to share their innovations followed by 5 minutes of Q&A. Afterwards, ILTA members in attendance casted ballots for first, second, and third place.
Kudos to Bryan Cave, Seyfarth Shaw, and Littler Mendelson for publicly sharing their innovations, as it demonstrates a commitment to the broader legal profession.
In this post, I will describe the salient points of each innovation. I will err on the side of detail because, when it comes to innovation in the legal space, there is a short supply of “guts of the operations” commentary. I will then offer some macro-level observations. As it turns out, BigLaw has on balance a surprisingly good hand to play. Many will thrive, but at the expense of taking market share from the rest.
Presenter: John Alber, Strategic Technology Partner
Bryan Cave has developed an ingenious and highly efficient way to educate its lawyers on the economics of its business. Prior to the presentation, I was familiar with the firm’s investment in a rigorous cost accounting system to guide the firm’s strategy and operations.
Yet, to get the full benefit out of such a system, the understanding needs to filter down to the individual lawyer-timekeeper level so that each lawyer-timekeeper can use the superior data to allocate time and effort in ways that strengthen the enterprise. Even in the year 2014, many successful and skilled BigLaw lawyers confuse revenues with profit. And the confusion is understandable because portable books of business, which tend to be measured in terms of revenue, drive the valuation of lateral partners. See Henderson & Zorn, Of Partners and Peacocks, Am. Law., February 2014.
The core Bryan Cave innovation is a simple dashboard that tracks a variety of statistics at the lawyer, practice group, and firm level. What is most striking about the Bryan Cave initiative is the sensitivity shown to the large percentage of lawyers who are not comfortable processing numbers (“arithmophobia” was the term used in the presentation). The Bryan Cave innovation team dealt with this constraint in two ways.
1. The Octagon. The Octagon is a data visualization technique that communicates eight key metrics in an octagon-shaped graphic. Wondering what the term "data visualization" means? It's finding graphical ways to communicate complex multivariable data in a format that requires the end user, such as a lawyer, to have very little technical training. The Octagon is a textbook example. It uses colors and distance from the center of the graphic to convey essential information related to origination, client relationships, matter management, days to bill, days to collect, hours billed, leverage, and profit margins. (There may be other octagons containing other metrics--the one we were shown appeared to be geared toward partners.)
Each lawyer each month gets a new updated Octagon; and that graphic communicates, through its shape, the lawyer’s relative contributions to the firm. Specifically, there are distinctive patterns well known within the firm that tend to signal rainmaker, service partner, project manager, technical specialist, or some blend thereof. The features of the Octagon also communicate how well a lawyer is performing in his or her various roles relative to his or her peers. So, on a monthly basis, self-image confronts hard numbers.
This type of transparency is bound to have a profound effect on behavior. (During another ILTA session I heard, from another Bryan Cave presenter, that since the introduction of the Octagon a couple of years ago, the average days to collect has fallen from 60 to 44.)
2. The Rosetta. Some lawyers are bound to prefer a story rather than a picture. For these lawyers, the firm has created a narrative, referred to as the Rosetta, that translates the numbers into a diagnostic story of strengths, weaknesses, and, most importantly, specific prescriptive advice on how to improve.
But there is an interesting catch—the stories are all written with a computer algorithm. How is this possible? It’s a technology pioneered by a company called Narrative Science. Note that computers that are fed nothing but a traditional baseball scoring sheet now routinely write sports stories that summarize the game for the local sports page. This narrative summary accompanying the Octagon removes any lingering ambiguity regarding what the diagram means. Further, all report generation, including practice-group level Octagon and Rosetta reports, has been entirely automated.
I am told that the Octagon and Rosetta programs can handle, and properly incentivize, work that is done on either a billable or alternative fee arrangement basis. If this is true, Bryan Cave has an innovation designed for the legal market of the future.
Some readers may be turned off that the Bryan Cave innovation may seem, on the surface anyway, entirely focused on law firm financial performance. I am not. To my mind, this type of technology is valuable for communicating the fundamentals of the business. This reduces the myths and false narratives that routinely take hold in data-poor environments. This innovation is also timely because it is getting harder to give clients superior value while also delivering a strong return to the firm's owners -- the best of whom could lateral to another firm tomorrow.
The challenge of every BigLaw firm is getting all of the firm's stakeholders to row in the same direction. The combination of the Dashboard, Octagon, and Rosetta is a breakthrough in lawyer communication and, by extension, change management. Bryan Cave attorneys have the information they need to both build their practices while also advancing the broader goals of the enterprise.
Seyfarth Shaw’s innovation is the creation of a true Research & Development Department staffed by lawyers, project managers, technologists, and software developers. The charge of Seyfarth’s R&D Department is to build solutions in advance of perceived client needs. As the presenters mentioned, “we are not doing this because our clients are asking for these solutions; we are doing this because our clients will ask.”
Sunday, June 1, 2014
Jordan Furlong is one of the first-rate commentators on the legal industry. He is an excellent observer, a deep thinker, and skilled and stylish communicator.
Over at Law 21, Jordan has written a set of companion essays that explain the ferment that is now taking hold in the legal industry. Check them out if you need or want the seemingly complex made simple.
The first essay is a highly useful reference guide to NewLaw (#NewLaw), a category coined by the Australian consultant George Beaton. Jordan modestly titled the essay "An Incomplete Inventory of NewLaw," but its alleged incompleteness does not distract from its usefulness. Complicated things like new business models need to be organized and simplified before we can get our heads around them. Here, Jordan creates a elegant typology and fills it out with example after example. Before Jordan's essay, few of us could be sure we were discussing the same ideas or concepts.
One of Jordan's most noteworthy observation is that the talent side of NewLaw is appears to be growing faster in the UK (new models of organizing and delivering legal services and content) while the US seems to be getting the most traction in legal tech. The former is likely due to liberalization of regulations that flow from the UK's Legal Services Act of 2007 and the latter from the proximity to venture funding. To have similar legal ecosystems developing in different ways is bound to trigger consequences and interactions that we cannot fully anticipate.
Jordan's second post is on the failure of legal innovation, which he points out is nothing more than the precursor long-term success. See "The Failure of Legal Innovation," Law 21, May 29, 2014. I definitely agree. When I look at the legal innovation space in 2014 -- and my frame for reference is LegalTech, LexRedux, ReInvent Law, some of the ABA Legal Rebels, and a lot of shoe-leather research on my part -- I think of Detroit in 1905. There were roughly 125 car manufacturers and hundreds more in other parts of the country, as Detroit was not yet car capital of the world. All of those business owners were right about one thing: The car is the future. But they wistful optimists about something else -- their car company is the future.
A start-up is like a sapling in the woods -- the odds are against it ever growing to the treeline. Fortunately, in the start-up ecosystem good ideas and talented entrepreneurs never really lose. Instead, they are rolled up into competitors to form the types of companies that can truly shape an entire new industry. Along these lines, if I were working in investment banking these days, I would be trying to specialize in the legal sector, as the roll-ups in this space are going to be fast and furious in the years to come.
Let's fasten our seatbelts. The next several years are going to be time of great tranformation.
Tuesday, May 27, 2014
In my inbox this morning was the HBS Daily Stat with the title, "You'll Absorb More if You Take Notes Longhand." Here is the accompanying explanation:
College students who take notes on laptop computers are more likely to record lecturers’ words verbatim and are thus less likely to mentally absorb what’s being said, according to a series of experiments by Pam A. Mueller of Princeton and Daniel M. Oppenheimer of UCLA. In one study, laptop-using students recorded 65% more of lectures verbatim than did those who used longhand; a half-hour later, the laptop users performed significantly worse on conceptual questions such as “How do Japan and Sweden differ in their approaches to equality within their societies?” Longhand note takers learn by reframing lecturers’ ideas in their own words, the researchers say.
SOURCE: The Pen Is Mightier Than the Keyboard: Advantages of Longhand Over Laptop Note Taking (emphasis in the original)
Wouldn't the same analysis almost surely apply to law students? Experience tells me that many law students would argue that they are in the minority who learn better through computer transcription. But what if, given a choice, over half decide to use laptops? It would be likely that many, if not most, would be making the wrong tradeoff.
Data rarely changes hearts and minds. As a result, there is likely a gap between maximum learning/knowledge worker productivity and what we are able to accomplish in an education or workplace setting. Why? People like what they are used to and rationalize why data does not apply to them. There is a solution to dilemma, I suspect. We just have not found it yet.
Sunday, May 4, 2014
The New York Times has is publishing a new series of short documentaries films called Op-Docs. The Op-Doc below is a dramatization of a deposition, albeit the script is a verbatim rendition of an actual deposition transcript. The plaintiff's lawyer is trying to establish whether the witness's office (which happens to be the Recorder for Cuyahoga County Court of Common Pleas) has a photocopy machine. Simple question, right?
The video is quite funny, but suffice it to say the verbatim transcript does not cast litigation in a favorable light. The fact that the Ohio judiciary is the defendant is even more troubling. Mediums like a documentary on the Times website seems like a promising change catalyst.
Monday, April 28, 2014
Every few months, whether I like it or not, I get served a slice of humble pie. I thought those tiring of the steady stream of law school critiques might find this slice particularly tasty, as someone else (me) is ingesting it.
Over the last few years, I have begun reading books on management and leadership. My interest in this topic is driven partly by my belief that law schools will be tooling up in this area in the years to come; and partly by a desire to learn about, and acquire, what I hope to teach.
The finest resource I have found on this topic is Management and Leadership: A Group of Letters to an Industrial Organization. This book was originally published in 1948 by Carl Braun, a prominent industrialist of the early and mid-20th century. Braun wrote this book, and several others, for the benefit of his managers at C.F. Braun & Co., which was an engineering company that designed and built many of the nation's oil refineries. I was drawn to Braun because his company was such a spectacular and enduring success.
The success, however, not not merely financial. What made C.F. Braun so successful for so long was Braun's relentless drive to maximize the potential of every person in his organization.
Now let's think about that -- reaping large profits by putting your people first. For Braun, this was not a abstraction. It was, in fact, the company's track record over a period of several decades. In 1989, 35 years after Carl Braun's death, C.F. Braun & Co. was sold to what is now Kellogg Brown & Root (KBR). And today, people who worked there are still reminiscing over the positive impact the company had on their lives and the lives of their families. If you think I am exaggerating, check out the C.F. Braun Alumni Group on LinkedIn.
I have read Management and Leadership several times. Without exception, each time I put the book down I feel both challenged and inspired. Well, this last time, I read the following passages in one sitting -- and suffice to say, the contrast hit be pretty hard. You be the judge.
Below in a section titled "The Doers Must Teach," Braun implores his managers to accept their role as teachers, as our nation's schools, including colleges and universities, lack the practical orientation of modern industry.
Our field of endeavor, industry, unlike medicine for instance, is one of those fields in which the teachers are not the doers. Our teachers, whether in grade-school, high school, or college, seldom have had industrial experience. Few have had even slight contact with industry. And fewer still have current contacts. Not understanding industry, they too often judge it by its worst members, and so develop for it an active disrespect.
The result is that, with rare exceptions, teachers do not find out from industry what industry needs from them. Nor do they seek from industry the teaching-methods that the better industrialists have developed. The gap is enormous between the abstract teachings of our schools and the concrete needs of industrial man. It is this gap that we industrial leaders must fill. We must fill in what's missing. And we must make the whole a living growing thing.
Well, as I am reading the above passage, my mind is quickly drawing a parallel between Braun and numerous incisive and trenchant critiques of legal education. See, e.g., Legal Education's Ninety-Five Theses, Legal Whiteboard, Feb 1, 2012; Harry Edwards, The Growing Disjunction Between Legal Education and the Legal Profession, 91 Mich L Rev 34 (1992). Yes, I thought to myself, these authors, like Braun, really know what they are talking about.
But that was not what Braun had in mind. About 20 pages later, Braun focuses on legal education and the case system as a beacon that will lead us to a better way.
The law schools have the right idea. They used to bore law students by droning at them from Blackstone - that encyclopedic treatise on law theory. But now they teach from concrete cases - and they've done it for eighty years. The student studies adjudicated cases - cases that are real, typical, modern. From these cases, with the help of his teacher, the student builds up the guiding rules.
This is the right method. Let it be our method. Let's shake ourselves free of the horrible methods we have been brought up on in our schools. Let's have no dogmatic rules in our teaching. Let's have no silly and artificial examples that nobody ever uses. Let's be sure that in all our teaching we start with concrete cases -- cases that are real, that are applicable to our purposes, and that preferably are within the practical experience of our learner.
Of course, in 1947, the year before Braun would extol law schools to his audience of engineers, the influential legal realist, Jerome Frank, published an incisive critique that called for the near complete overthrow of the 80-year tradition. See Frank, A Plea for Lawyer-Schools, 56 Yale L J 1301 (1947).
Alas, we humans often find the deepest faults with what is close and intimate, and greatest virtue with what is mythical and far away. How often a sense of accurate proportion eludes us. After several years traveling the country discussing legal education reform, I have gradually concluded that if I want to maximize my influence on change, I need to build and encourage, not criticize and debate.
Sunday, March 30, 2014
Readers might enjoy my forthcoming essay, Letting Go of Old Ideas, 112 Mich L Rev _ (2014), which reviews two important new books on the legal profession, Steven Harper's The Lawyer Bubble and Richard Susskind's Tomorrow's Lawyers. If you want to know why the legal profession circa 2014 is such a rich topic for study, here is a useful clue: Harper and Susskind both critically examine this topic yet come to dramatically different conclusions that neither overlap nor conflict with one another. The complexities run that deep.
Thanks to his prolific commentary in the legal press, Harper's critique is familar to many readers. He is angry with the elite legal establishment -- large law firms and the legal professoriate -- for succumbing to "a culture of short-termism" that focuses obsessively on the AmLaw and US News league tables. As someone in the target group, I confess that I don't remember making a conscious decision to sell out. Yet, here is the problem. When all the facts in the public domain are arrayed by a skilled trial lawyer, the question can be asked, "why didn't you stand up to this nonsense?" This is a classic example of diffusion of responsibility. When we are all equally responsible for upholding good behavior, no one is responsible. Collective denial sets it, and the profession gets a black eye.
Yet, to my mind, there is an avenue for at least partial redemption -- reading Richard Susskind's slender 165 page book. In my Counterpoint essay, I lay out the mounting evidence that the legal industry is in the early stages of a sea change. The best theoretical treatment of this sea change is Susskind's Tomorrow's Lawyers. Yet, I am amazed at how many lawyers and law professors know essentially nothing about Susskind's work. Tomorrow's Lawyers was written for law students. It is a short, accessible book. After reading the first two paragraphs, I doubt anyone with a long-term time horizon in the legal industry will put it down without finishing it:
This book is a short introduction to the future for young and aspiring lawyers.
Tomorrow’s legal world, as predicted and described here, bears little resemblance to that of the past. Legal Institutions and lawyers are at a crossroads, I claim, and are poised to change more radically over the next two decades than they have over the last two centuries. If you are a young lawyer, this revolution will happen on your watch. (p. xiii).
If you have not read Tomorrow's Lawyers, you may be setting yourself for a Kodak moment.
March 30, 2014 in Blog posts worth reading, Current events, Important research, New and Noteworthy, Scholarship on legal education, Scholarship on the legal profession, Structural change | Permalink | Comments (2)
Monday, March 17, 2014
There is a line in Professor Reich-Graefe's recent essay, Keep Calm and Carry On, 27 Geo. J. Legal Ethics 55 (2014), that is attracting a lot of interest among lawyers, law students, and legal academics:
[R]ecent law school graduates and current and future law students are standing at the threshold of the most robust legal market that ever existed in this country—a legal market which will grow, exist for, and coincide with, their entire professional career.
This hopeful prediction is based on various trendlines, such as impending lawyer retirements, a massive intergenerational transfer of wealth that will take place over the coming decades, continued population growth, and the growing complexity of law and legal regulation.
Although I am bullish on future growth and dynamism in the legal industry, and I don't dispute the accuracy or relevance of any of the trendlines cited by Reich-Graefe, I think his primary prescriptive advice -- in essence, our problems will be cured with the passage of time -- is naive and potentially dangerous to those who follow it.
The Artisan Lawyer Cannot Keep Up
The primary defect in Reich-Graefe's analysis is that it is a one-sided argument that stacks up all impending positive trendlines without taking into account the substantial evidence that the artisan model of lawyering -- one-to-one consultative legal services that are tailored to the needs of individual clients -- is breaking down as a viable service delivery model.
Lawyers serve two principal constituencies--individuals and organizations. This is the Heinz-Laumann "Two-Hemisphere" theory that emerged from the Chicago Lawyers I and II studies. See Heinz et al, Urban Lawyers (2005). The breakdown in the artisan model can be observed in both hemispheres.
- People. Public defenders are understaffed, legal aid is overwhelmed, and courts are glutted with pro se litigants. Remarkably, at the same time, record numbers of law school graduates are either unemployed or underemployed. Why? Because most poor and middle-class Americans cannot afford to buy several hours of a lawyer's time to solve their legal problems.
- Organizations. The most affluent organizations, multinational corporations, are also balking at the price of legal services. As a result, foreign labor, technology, process, or some combination thereof has become a replacement for relatively expensive and unskilled junior lawyers.
The primary driver of this structural shift is the relentless growth in legal complexity. This increase in complexity arises from many sources, including globalization, technology, digitally stored information, and the sheer size and scope of multinational companies.
But here is a crucial point: the complexity itself is not new, only its relative magnitude. A century ago, as the modern industrial and administrative state was beginning to take shape, lawyers responded by organizing themselves into law firms. The advent of law firms enabled lawyers to specialize and thus more cost-effectively tackle the more complex legal problems. Further, the diffusion of the partner-associate training model (sometimes referred to as the Cravath system) enabled firms to create more specialized human capital, which put them in an ideal position to benefit from the massive surge in demand for legal services that occurred throughout the 20th century. See Henderson, Three Generations of Lawyers: Generalists, Specialists, Project Managers, 70 Maryland L Rev 373 (2011).
The legal industry is at the point where it is no longer cost effective to deal with this growing complexity with ever larger armies of artisan-trained lawyers. The key phrase here is cost effective. Law firms are ready and willing to do the work. But increasingly, clients are looking for credible substitutes on both the cost and quality fronts. Think car versus carriage, furnace versus chimney sweep, municipal water system versus a well. A similar paradigm shift is now gaining momentum in law.
The New Legal Economy
I have generated the graph below as a way to show the relationship between economic growth, which is the engine of U.S. and world economies, and the legal complexity that accompanies it.
1. Rise of the law firm. From the early twentieth century to the early 1980s, the increasing complexity of law could be capability handled by additional law firm growth and specialization. Hire more junior lawyers, promote the best ones partner, lease more office space, repeat. The complexity line has a clear bend it in. But for most lawyers, the change is/was very gradual and feels/felt like a simple linear progression. Hence, there was little urgency about the need for new methods of production.
2. Higher law firm profits. Over the last few decades, the complexity of law outpaced overall economic growth. However, because the change was gradual, law firms, particularly those with brand names, enjoyed enough market power to perennially increase billing rates without significantly improving service offerings. Corporate clients paid because the economic benefits of the legal work outweighed the higher costs. Lower and middle class individuals, in contrast, bought fewer legal services because they could not afford them. But as a profession, we barely noticed, primarily because the corporate market was booming. See Henderson, Letting Go of Old Ideas, 114 Mich L Rev 101 (2014).
3. Search for substitutes. Laws firms are feeling discomfort these days because the old formula -- hire, promote, lease more space, increase rates, repeat -- is no longer working. This is because clients are increasingly open to alternative methods of solving legal problems, and the higher profits of the last few decades have attracted new entrants. These alternatives are some combination of better, faster, and cheaper. But what they all share in common is a greater reliance on technology, process, and data, which are all modes of problemsolving that are not within the training or tradition of lawyers or legal educators. So the way forward is profoundly interdisciplinary, requiring collaboration with information technologists, systems engineers, project managers, data analysts, and experts in marketing and finance.
Why is this framework potentially difficult for many lawyers, law firms, and legal educators to accept? Probably because it requires us to cope with uncertainties related to income and status. This reluctance to accept an unpleasant message creates an appetite for analyses that say "keep calm and carry on." This is arguably good advice to the British citizenry headed into war (the origin of the saying) but bad advice to members of a legal guild who need to adapt to changing economic conditions.
There is a tremendous silver lining in this analysis. Law is a profoundly critical component of the globalized, interconnected, and highly regulated world we are entering. Lawyers, law firms, and legal educators who adapt to these changing conditions are going to be in high demand and will likely prosper economically. Further, at an institutional level, there is also the potential for new hierarchies to emerge that will rival and eventually supplant the old guard.
One of the virtues of lawyers is that we demand examples before we believe something to be true. This skepticism has benefited many a client. A good example of the emerging legal economy is the Available Positions webpage for kCura, which is a software company that focuses exclusively on the legal industry.
The current legal job market is terrible, right? Perhaps for entry-level artisan-trained lawyers. But at kCura, business is booming. Founded in 2001, the company now employs over 370+ workers and has openings for over 40 full-time professional positions, the majority of which are in Chicago at the company's LaSalle Street headquarters. Very few of these jobs require a law degree -- yet the output of the company enables lawyers to do their work faster and more accurately.
What are the jobs?
- API Technical Writer [API = Application Programming Interface]
- Big Data Architect - Software Engineering
- Business Analyst
- Enterprise Account Manager
- Group Product Manager
- Litigation Support Advice Analyst
- Manager - Software Engineering
- Marketing Associate
- Marketing Specialist -- Communications
- Marketing Specialist -- Corporate Communications and Social Media
- Product Manager -- Software and Applications Development
- QA Software Engineer -- Performance [QA = Quality Assurance]
- Scrum Team Coordinator [Scrum is a team-based software development methodology]
- Senior SalesForce Administrator
- Software Engineer (one in Chicago, another in Portland)
- Software Engineer (Front-End Developer) [Front-End = what the client sees]
- Software Engineer in Test [Test = finds and fixes software bugs]
- Technical Architect
- Technical Architect - Security
- VP of Product Development and Engineering
kCura operates exclusively within the legal industry, yet it has all the hallmarks of a great technology company. In the last few years it has racked up numerous awards based on the quality of its products, its stellar growth rate, and the workplace quality of life enjoyed by its employees.
That is just what is happening at kCura. There are many other companies positioning themselves to take advantage of the growth opportunities in legal, albeit none of them bear any resemblance to traditional law firms or legal employers.
In early February, I attended a meeting in New York City of LexRedux, which is comprised of entrepreneurs working in the legal start-up space. In a 2008 essay entitled "Legal Barriers to Innovation," Professor Gillian Hadfield queried, "Where are the 'garage guys' in law?" Well, we now know they exist. At LexRedux, roughly 100 people working in the legal tech start-up space were jammed into a large open room in SoHo as a small group of angel investors and venture capitalists fielded questions on a wide range of topics related to operations, sales, and venture funding.
According to Angel's List, there are as of this writing 434 companies identified as legal start-ups that have received outside capital. According to LexRedux founder Josh Kubicki, the legal sector took in $458M in start-up funding in 2013, up from essentially zero in 2008. See Kubicki, 2013 was a Big Year for Legal Startups; 2014 Could Be Bigger, Tech Cocktail, Feb 14, 2014.
The legal tech sector is starting to take shape. Why? Because the imperfections and inefficiencies inherent in the artisan model create a tremendous economic opportunity for new entrants. For a long period of time, many commentators believed that this type of entrepreneurial ferment would be impossible so long as Rule 5.4 was in place. But in recent years, it has become crystal clear that when it comes to organizational clients where the decisionmaker for the buyer is a licensed lawyer (likely accounting for over half of the U.S. legal economy) everything up until the courthouse door or the client counseling moment can be disaggregated into a legal input or legal product that can be provided by entities owned and controlled by nonlawyers. See Henderson, Is Axiom the Bellwether of Legal Disruption in the Legal Industry? Legal Whiteboard, Nov 13, 2013.
The Legal Ecosystem of the Future
In his most recent book, Tomorrow's Lawyers, Richard Susskind describes a dynamic legal economy that bares little resemblance to the legal economy of the past 200 years. In years past, it was easier to be skeptical of Susskind because his predictions seemed so, well, futuristic and abstract. But anyone paying close attention can see evidence of a new legal ecosystem beginning to take shape that very much fits the Susskind model.
Susskind's core framework is the movement of legal work along a five-part continuum, from bespoke to standardized to systematized to productized to commoditized. Lawyers are most confortable in the bespoke realm because it reflects our training and makes us indispensible to a resolution. Yet, the basic forces of capitalism pull the legal industry toward the commoditized end of the spectrum because the bespoke method of production is incapable of keeping up with the needs of a complex, interconnected, and highly regulated global economy.
According to Susskind, the sweet spot on the continuum is between systematized and productized, as this enables the legal solution provider to "make money while you sleep." The cost of remaining in this position (that is, to avoid commoditization) is continuous innovation. Suffice it to say, lawyers are unlikely to make the cut if they choose to hunker down in the artisan guild and eschew collaboration with other disciplines.
Below is a chart I have generated that attempts to summarize and describe the new legal ecosystem that is now taking shape [click-on to enlarge]. The y-axis is the Heinz-Laumann two-hemisphere framework. The x-axis is Susskind's five-part change continuum.
Those of us who are trained as lawyers and have worked in law firms will have mental frames of reference that are on the left side of the green zone. We tend to see things from the perspective of the artisan lawyer. That is our training and socialization, and many of us have prospered as members of the artisan guild.
Conversely, at the commoditized end of the continuum, businesses organized and financed by nonlawyers have entered the legal industry in order to tap into portion of the market that can no longer be cost-effectively serviced by licensed U.S. lawyers. Yet, like most businesses, they are seeking ways to climb the value chain and grow into higher margin work. For example, United Lex is one of the leading legal process outsourcers (LPOs). Although United Lex maintains a substantial workforce in India, they are investing heavily in process, data analytics, and U.S. onshore facilities. Why? Because they want to differientiate the company based on quality and overall value-add to clients, thus staving off competition from law firms or other LPOs.
In the green zone are several new clusters of companies:
- LeanLaw. This sector is comprised of BigLaw that is transforming itself through reliance on process and technology. Seyfarth Shaw has become the standard-bearer in this market niche, see What does a JD-Advantaged Job Look Like? A Job Posting for a "Legal Solutions Architect", Legal Whiteboard, Oct 15, 2013, though several other law firms have been moving under the radar to build similar capabilities.
- NewLaw. These are non-law firm legal service organizations that provide high-end services to highly sophisticated corporations. They also rely heavily on process, technology, and data. Their offerings are sometimes called "managed services." Novus Law, Axiom, Elevate, and Radiant Law are some of the leading companies in this space.
- TechLaw. These companies would not be confused with law firms. They are primarily tool makers. Their tools facilitate better, faster, or cheaper legal output. kCura, mentioned above, works primarily in the e-discovery space. Lex Machina provides analytic tools that inform the strategy and valuation of IP litigation cases. KM Standards, Neota Logic, and Exemplify provide tools and platforms that facilitate transactional practice. In the future, these companies may open the door to the standardization of a wide array of commercial transactions. And standardization drives down transaction costs and increases legal certainty -- all good from the client's perspective.
- PeopleLaw. These companies are using innovative business models to tap into the latent people hemisphere. Modria is a venture capital-financed online dispute resolution company with DNA that traces back to PayPal and the Harvard Negotiations Workshop. See Would You Bet on the Future of Online Dispute Resolution (ODR)? Legal Whiteboard, Oct 20, 2013. LegalForce is already an online tour de force in trademarks -- a service virtually every small business needs. The company is attempting to translate its brand loyalty in trademarks into to new consumer-friendly storefront experience. Its first store is in the heart of University Avenue in Palo Alto. LegalForce wants to be the virtual and physical portal that start-up entrepreneurs turn to when looking for legal advice.
When I write about the changes occurring in the legal marketplace, I worry whether the substance and methodology of U.S. legal education provides an excellent education for a legal world that is gradually fading away, and very little preparation for the highly interdisciplinary legal world that is coming into being.
Legal educators are fiduciaries to our students and institutions. It is our job to worry about them and for them and act accordingly. Surely, the minimum acceptable response to the facts at hand is unease and a willingness to engage in deliberation and planning. Although I agree we need to stay calm, I disagree that we need to carry on. The great law schools of the 21st century will be those that adapt and change to keep pace with the legal needs of the citizenry and broader society. And that task has barely begun.
March 17, 2014 in Blog posts worth reading, Current events, Data on legal education, Data on the profession, Innovations in law, Innovations in legal education, New and Noteworthy, Scholarship on legal education, Scholarship on the legal profession, Structural change | Permalink | Comments (16)
Sunday, December 8, 2013
Based on the chart below, which reflects 35 years of large law firm data, the answer appears to be yes. The chart enables us to compare two very simple trendlines: the percentage of lawyers in NLJ 250 law firms who have the title of Associates versus the percentage with the title of Partner.
The chart above was generated by my colleague, Evan Parker-Stephen, who is Director of Analytics at Lawyer Metrics. I asked Evan to crunch these data after some of research I was working on revealed a 50% decline in Summer Associate hiring between 2002 and 2012 at the ~600 law firms listed in the NALP Directory (11,302 to 5,584). In other words, 2008 is the wrong reference point. See Sea Change, NALP Bulletin (Aug 2013). Something more substantial was (is) happening.
Indeed, the 35-year graphic above provides a true wide-angle view, which in turn reveals an absolutely remarkable story. Associates were most integral to the large law firm model over 25 years ago. Although large law firms went on a hirng spree at various points during the 1990s and 2000s, the firms themselves were simultaneously adding a new layer of human capital that was neither associate or partner/owner. And in the process, associates were gradually being marginalized. The graph below (also NLJ 250 data) reveals the growing middle section of the so-called Diamond Model:
So what does all this mean?
My best analysis is set forth in a short research monograph I wrote with Evan, entitled "The Diamond Law Firm: A New Model or the Pyramid Unraveling?" The punchline is that large law firms appear to be chasing short-term profits at the expense of longer-term sustainability. It would not be the first industry sector to lose its competitive advantage through myopic strategy -- as the saying goes, nothing fails like success. See Henderson, Three Generations of U.S. Lawyers: Generalist, Specialist, Project Manager. Large firms are not going extinct. But as a matter of demographics, they are greying. If BigLaw were trading on the Nasdaq, the analysts would be very critical of this trend.
December 8, 2013 in Blog posts worth reading, Data on the profession, Important research, Law Firms, New and Noteworthy, Scholarship on the legal profession, Structural change | Permalink | Comments (9)
Wednesday, November 27, 2013
If you have the courage and curiosity to understand the breadth and depth of the changes taking shape in the legal market, then I would encourage you to use some of your Thanksgiving break to read "Recalculate the Future of Law," which is Insight Lab's interview with MSU Law Professor Dan Katz.
It is all-too-easy to believe that innovation occurs in the wake of a great idea, but that is not quite right. Innovation is also about timing and understanding how human institutions are held together and change and evolve. If the innovator has the benefit of timing and understands how human institutions actually work, an effective adoption strategy is possible.
Fortunately, for Dan Katz, all of these factors appear to be in alignment. Katz is acutely aware of his timing and the myriad of factors that enable innovation to take hold. He is also young (35 years old) and has the courage to place very large bets -- the largest bet being that he is not waiting to get tenure before starting his life's work. He is doing it now in his third year of teaching.
But to mind, there is some additional secret sauce. What makes Katz so disruptive is his 100% personal commitment to the growth and potential of his students. He is awaking the sleeping giant -- hope and a sense of purpose for young people. Specificially law students. If you are in his ReInvent Law Labratory, you see a different legal landscape with a whole lot more options. But to tap into that hope, Dan makes you do the work. You have to challenge yourself. And you have to shed the bullshit phobia over basic math. He is building a community of interest that has the potential to morph into a movement driven by young lawyers and law graduates. For more on Katz's unusual bio, see "This is just an education design problem," LWB, Sept 23, 2013.
The interviewer over at Insight Labs got pretty close to the full, uneditted Dan. If you want to learn about the underinvestment problem that is undermining BigLaw, the crucial role of start-ups in the emerging field of legal R&D, how the next generation of law students can do well and do good, or the real hazards of the $1 Million JD debate, give it a full read.
November 27, 2013 in Blog posts worth reading, Current events, Fun and Learning in the classroom, Innovations in law, Innovations in legal education, New and Noteworthy, Structural change | Permalink | Comments (2)
Sunday, November 24, 2013
That is the title of a panel at the Annual Georgetown Advanced E-Discovery Institute conference. In an article in Law Technology News, Monica Bay does a wonderful job summarizing what appears to have been a lively, thought-provoking discussion. I can't do better than Monica, but I so want to highlight some of quotes that really caught my eye:
[DC Federal Magistrate Judge] Facciola served as moderator, and threw the first question at Butterfield [partner at Hausfeld], who dove right into a discussion of the explosion of data creation, citing a laundry list of impressive facts, including that "every minute of every day Google receives two million queries ... 571 websites are created every minute ... and more than 200 million emails are sent every minute. We are communicating in ways that didn't exist 20 years ago," he said. ...
Facciola asked Butterfield if he was troubled by the outsourcing of e-discovery to nonlawyers and/or machines. "I do see the tension because lawyers must certify the work," Butterfield acknowledged. ...
Facciola then turned to [SDNY District Court Judge Shria] Scheindlin, who shifted the focus to the courts. "All cases are now e-discovery cases," she asserted. "Even the littlest cases have e-discovery, everyone has to know how to do it," she said. ...
Scheindlin said we are entering an era of a divide between the "technology haves and technology have-nots," and noted that small firms may not be able to afford the start-up costs that e-discovery requires. She reminded the audience that not every litigant can afford a lawyer. "Twenty-five percent of my cases are pro se," she said. ...
Facciola then posed the question of whether lawyers as a group welcome technology and change.
"I think the reality is that most lawyers are not innovators and are afraid of technology," offered Redgrave. "There is a reality that to have continued value, lawyers need to understand technology. ... "
Asked Facciola: "Is this 'Star Trek'?" Scheindlin jumped in: "Of course trials will change—the question is, will we have trials anymore?" Scheindlin noted that routine technology, such as GPS, cellphones, Facebook and other location tools are changing our daily reality to the point where it's increasingly easy to prove facts. "There are no conversations any more, it's emails and texts. We will know where folks are," she said. ... Technology is making it so we always know where people are; thus no need for alibi witnesses." ...
Finally, lawyers need to abandon the "gladiator" role that is imprinted in law school, the panelists asserted, taking strong pokes at the current status of law schools.
"Do I think legal education is keeping up [with technology and cooperation]? Absolutely not....
Scheindlin warned academia that they need to get with the reality. "I think the notion of a two-year law school is coming, with the third year clerking." But, she qualified, "I wouldn't be surprised if law schools turn around. The younger generation is more tech savvy than we are. Many lawyers are technophobic, but the next generation is growing up with technology."
That was quite a provocative exchange, and not by legal futurists, but judges and practicing lawyers presiding over cases in federal court.
- How Do Law Professors Learn About the Intersection of Law and Technology?, LWB, Dec. 29, 2012.
Sunday, November 10, 2013
I think the answer is yes. For the last several years, I have been an avid watcher of Axiom's growth, but this article in Friday's Houston Business Journal finally convinced me that the top-end of the legal industry is changing and that Axiom is setting the standard for disruption.
On a surface level, many of the facts in the HBJ article are unremarkable. Axiom opened its Houston office back in May 2012. Since then, it has grown to 30 lawyers and expects to add another 15 over the next 12 months. Yet, during this same period, the boom in the energy sector has caused several national and international law firms to also open offices in Houston, including Reed Smith, Dentons, Katten Muchin, and K&L Gates,
Axiom and large law firms are definitely targeting and servicing the same clientele -- Fortune 100 legal departments. The substance of their work is also very similar -- sophisticated, complex legal work related to disputes, transactions, and compliance. But in many cases, the solutions offered by Axiom are radically different.
Okay, now a reasonable expectation of any reader is likely to be, "Now explain that difference." Back in 2010, Axiom's CEO Mark Harris told Law Practice magazine that Axiom was "trying to invent a whole new category of law firm. When you’re doing that there is no vocabulary [to describe your business model]."
In my experience, the opaqueness of Axiom's business model actually works to its advantage. Specifically, it encourages Axiom's primary competitors (large law firms) to put Axiom in a box based on an outdated caricature. That, in turn, gives Axiom more running room to fully implement the "whole new model." Let me start with the caricature; then I will do my best to explain what the company actually does.
The Inaccurate Axiom Caricature
In its early years, Axiom was described by many as a high-end "temp" service for legal departments. See, e.g., Peter Lattman, Axiom: A Different Kind of Legal Practice? WSJ Law Blog, Nov. 27, 2007 (describing Axiom as having developed "a niche as a provider of high-end temp services to blue-chip corporate clients").
The simplified version runs like this. Lawyers working in large law firms trade-in their partner status, or shot at partnership, for more autonomy and a better work-life balance. By brokering relationships between legal departments and skilled but disaffected lawyers, Axiom ditches the "class A" overhead and reduces the allocation of legal fees that would otherwise support record law firm profits.
Under this caricatured model, all parties are made better off -- the client (who gets the same quality work, but cheaper), the lawyers (who get off the billable hour trend mill and are able take vacations again), and Axiom (which collects a fee). The caricatured model also enables large law firms to dismiss the Axiom model on the belief that only a small tranche of legal work is at risk of being siphoned away. And that work is lower margin and price sensitive -- so-called "commodity" legal work. Finally, the lawyers leaving for Axiom are not the heavy-hitter equity partners who control client relationships. Hence, the analysis is complete: Axiom represents zero threat to the BigLaw model.
Yet, if brokering lawyer services was originally the core of Axiom's business, they have subsequently expanded their offerings. Back in 2007, Axiom was #73 on Inc magazine's list of fastest growing companies, with revenues of $17 million per year and 1000%-plus growth over three years. Since then, its revenues have grown another ten-fold. Earlier this year, Axiom took $28 million in outside investment, which it plans to invest in technology. See Mark Harris of Axiom Answers Hard Questions, Legal Whiteboard, Sept. 25, 2013.
With this kind of growth, and the backing of very serious venture capital funds, perhaps its time to check the assumptions surrounding the Axiom caricature.
The "Managed Services" Business Model
Based on my own discussions with Axiom management and several articles on the topic, see, e.g., Adam Smith, ABA Journal, Strategic Legal Technology Blog, the fastest growing part of Axiom's business is its "Managed Services" practice.
Part of the managed services practice is analyzing and redesigning workflows so that in-house lawyers have the cost and quality information needed to make better sourcing decisions. Because Axiom is helping to redesign the workflows, including the specifications for sourcing decisions, it is well-positioned to do much of the resulting work -- indeed, unless it can manage both the design and execution of the work flow, Axiom can't warranty the results.
What is the goal of the workflow redesigns? To reduce legal risk and legal cost at the same time, primarily through process, measurement, and feedback loops. Virtually the entire law firm and law school universe is stuck in a mental frame that believes that better, faster, and cheaper are in permanent tension with each other. This is because our mental frame of reference is based on artisan-trained lawyers working in a traditional office environment with Word, email, and a searchable bank of forms and briefs.
Yet, when systems engineers, information technologists, and project managers because equal members of the team, "better, faster, cheaper" becomes a straightforward problem that can be solved through a four-part continuous process: design, execute, measure, repeat.
Much of the key design and execution work at Axiom is done by nonlawyers who formerly worked for global consulting businesses. See, e.g., this opening in Axiom (Chicago) for Project Management Director of Managed Contracts.
Indeed, the head of Axiom's Houston office is Brian Bayne, a business development professional with an MBA from the University of Dallas. Before joining Axiom, Bayne worked for IBM. Here is how Bayne described Axiom to the HBJ:
"The heart of what motivates us as a company is to be seen as an agent of change ... . We want to be a leading voice for transition in the industry. It really is a new way of doing business and offers a completely different value proposition that most law firms are not in a position to do."
Is Axiom a Law Firm?
Over at the E-Lawyering Blog back in April, Richard Granat did a very careful job trying to answer this question, and concluded that the answer was "no." In fact, Axiom is a Delaware C-Corp with nonlawyer investors as equity shareholders.
So, how is Axiom getting around the Rule 5.4 ban on fee-splitting with nonlawyers? The answer to this question has a lot to do with the nature of outsourcing and managed services within legal departments. A general counsel for a corporation controls the legal functions of the company. Because he or she can't do all the work themselves, they hire in-house legal staff and outside counsel. In recent years, legal departments have also contracted directly with LPOs, particularly on matters related to e-discovery and M&A due diligence. When it comes to non-law firm options, such as LPOs, the general counsel and his or her staff are "supervising" the work within the meaning of the legal ethics rules.
When a general counsel of a corporation uses a managed service provider, such a Axiom, they are diverting a tranche of work they control. The value of the managed service provider is process expertise plus economies of scale and scope. Axiom, through a contract with the legal department, manages some of that legal workflow that supports in-house lawyers in their counseling and compliance roles. Yet, the buyer of the managed services is himself a lawyer, and that lawyer is ultimately responsible for advising the corporation on legal risk.
On one level, Axiom is a niche business. As Granat notes, "If you don't have an in-house counsel, then you can't use Axiom's services. Not being a law firm, Axiom cannot provide services to the public (individuals or organizations) directly." Yet, this niche accounts for a huge proportion of the entire legal services market. In this American Lawyer article, one of Axiom's venture capital investors, opined "With a worldwide legal market that is a trillion dollars each year, there is plenty of running room to build a successful business."
Ultimately, the value proposition very simple. As an in-house lawyer, you can educate yourself on the Axiom managed services approach and be comfortable that, through process and measurement, you have a solid handle on this tranche of the company's legal work, likely within budget. Or you can have the CYA coverage of a brand name law firm and continue to do battle with your CFO over rising legal fees. If you were an investor, which approach you would bet on?
So Axiom can't help you with your divorce, will, or personal injury case. Don't worry, Jacoby & Meyers, Legal Zoom, Legal Rocket, and others are trying to tap into that market. See Legal Futures, Nov 8, 2013. In the meantime, Axiom may be gunning to be a service provider to your large corporate employer.
The Last Days of a Bloodless Revolution
I am sure that a state bar regulator, taking a very formalistic approach, can take issue with Axiom's construction of Rule 5.4, which prohibits profit-sharing between lawyers and nonlawyers from income generated from the practice of law. But the purpose behind Rule 5.4 is to preserve lawyer independence so that the quality of the underlying legal advice won't be compromised by the nonlawyer's pursuit of profit.
In the case of Axiom, however, the person making the buying decision is a highly sophisticated lawyer who is struggling to manage his or her organization's legal needs within a budget. Stated bluntly, the GC of a multinational corporation does not want the kind of consumer protection that a formalistic construction of Rule 5.4 would provide.
A betting person, such as a nonlawyer Axiom investor, would likely conclude that the bar regulators are not going to pick a fight with the largest corporations headquartered in their jurisdiction. Why would they? The subtext of economic protectionism would set them up for ridicule in the legal and mainstream press--who, exactly, is being harmed besides the law firms who are losing market share? And is there a principled basis to distinguish LPOs from managed services?
Expect to read more about state regulators in the "risk factors" section of Axiom's S-1 registration statement if and when Axiom decides go public. I think these risks will likely remain hypothetical, but as my friend Ed Reeser is known to say, "That is just my opinion. I could be wrong."
Truth be told, the nonlawyer revolution in U.S. legal services is occurring right now. And there is a good possibility that the whole revolution will take place without a single shot ever being fired.
Back to Houston
The HBJ reporter asked a local Houston legal recruiter about the future prospects for Axiom. The recruiter commented that he was "[n]ot sure how well they will do in Texas, given the conservative nature of the legal business here."
In my own experience, general counsel in Texas are among the most innovative and entrepreneurial in the country. The General Counsel Forum was originally founded in Texas as a state-level organization, and it is now rivalling the Association of Corporate Counsel (ACC) in terms of eduational programming for in-house lawyers and sharing best practices and benchmarking.
Lawyers as a group may be conservative, but within that distribution there is a small cadre of innovators and early adopters. Although most people don't change their behavior in response to abstract ideas, innovators and early adopters are at least drawn to the possibility. Not every idea will be successful -- indeed, the trial and error of the innovators is often a basis for dismssing them as fringe players. Yet, when an innovation produces a significant leap forward, the resulting success eventually sets off a widespread diffusion among the broader population.
There is a rich sociological literature on this topic, which was pioneered by Everett Rogers in his 1962 book, Diffusion of Innovation. It turns out that self-interest is often inadequate to overcome inertia and prejudice, at least in the short- to medium-term. The classic example is hybrid seeds, which have a host of advantages for producing more bountiful, disease-free crops. Yet, that innovation took decades to take hold among farmers.
Looking for another example? In the early 1980s, Bill James was publicizing the benefits of his stats-driven approach to baseball. The advertised benefits were clear -- "you can win more baseball games." Isn't that what every baseball team wants? But what's the cost? "Well, you'll have to change the way your evaluate talent." For nearly twenty years, the implicit answer of the baseball establishment was "no, that price is too high." Within the last decade, however, the stats-driven appoach has become commonplace in baseball and in other sports as well. The innovation has become diffuse.
I suspect that Axiom's senior management fully understands these dyanmics. Looking at the distribution model from Everett Roger's book, if you are trying to sell your unproven innovation, you are literally wasting your time trying to sell to your wares to 85% of the market. Indeed, if you are in the very early stages of innovation, 98% of the potential buyers are likely to be resistant to your pitch.
The problem here is not economics -- its human nature. This may be hard for many lawyers to believe, but lawyers, including general counsel, are human beings. And human beings are prone to a series of predictable reactions when presented with various stimuli, such as new ways to perform their work. Rather than process the merits of the idea, many human beings, including lawyers, will instead gauge the reactions of the market leaders. If the market leaders react with approbation, the early and late majority become willing to actually engage with the idea.
What this means is that the merits of a good idea are not enough to ensure its success, at least immediately. This is a key practical insight that the reformer/innovator class seldom grasps. Without understanding Roger's Diffusion of Innovation curve, an innovator's success becomes a function of timing and luck -- that is the story of Bill James.
But if you understand the diffusion process, it is possible to construct a filter that locates the innovator/early adopter class. And if you study their beliefs and problems, you can more effectively tailor your pitch. This approach saves time and money and holds the team together in the belief that they will ultimately be successful.
So, where is Axiom on the Rogers Diffusion Curve?
My best guess is the "early adopters" stage, as Axiom has relationships with roughly half of the Fortune 100 and is working hard to widen those relationships with more ambitious projects. Their goal, as best as I can tell, is to generate a clear proof-of-concept that they have solutions to the risk/cost conundrum that plagues so many legal departments and causes them to blow their budgets. With sufficient market testimonials, and as in-house lawyers with exposure to Axiom migrate to other legal departments, the broader legal market will begin to tip.
I find the Axiom story refreshing, primarily because the legal market has fallen under the spell of the fast follower strategy. In my travels, I often encounter the attitude "Let someone else prove that it can be done differently and better and then we will follow." When virtually the entire market adopts this worldview, incumbent institutions begin to relish the false starts of others and a general sense of complacency begins to set in. Frankly, I find this whole dynamic unprofessional is the classical sense of that word -- i.e., at variance with professional standards and conduct.
Axiom, in contrast, is on the brink of demonstrating the benefits of the first mover advantage in law. This is bound to have the beneficial, balancing effect on the rest of us.
- "LPOs Stealing Deal Work from Law Firms", Feb 6, 2013.
- Mark Harris of Axiom Answers Hard Questions, Sept 25, 2013.
November 10, 2013 in Blog posts worth reading, Current events, Data on the profession, Innovations in law, Law Firms, Legal Departments, New and Noteworthy, Structural change | Permalink | Comments (0)
Friday, November 8, 2013
Clayton Christensen is the Harvard Business School professor who wrote The Innovator's Dilemma, the seminal book on why successful businesses so rarely stay on top over the long term. Although focused on the tech industry -- where product cycles are very short -- Christensen's framework has a much wider application, including legacy industrial enterprises and countries. In 2011, Christensen published a book called The Innovative University, which applied the Innovator's Dilemma framework to higher education.
Below is a YouTube video of Christensen explaining his thesis to a conference in Dallas organized around the future of public universities. His talk is very long by online video standards (80 minutes) but worth the time of anyone who wants to understand the Christensen framework and its application to higher ed. At approximately minute 45, Christensen specifically mentions law schools. Below the video is some additional context on Christensen.
Remember that near presidential coup at University of Virginia, which was reported in the New York Times Magazine last fall (link)? Well, Christensen's ideas had begun to propagate within the university trustee community, thanks in part to a letter than Christensen and Henry Eyring had recently written to the American Council of Trustees and Alumni (ACTA).
As discussed in the New York Times article, the coalition that was animated by Christensen's ideas was ultimately defeated by the palace guards. But that was the first attempted coup at a major research university, not the last. As Christensen points out in the video, universities are feeling pressure from innovative models that "compete against nonconsumption." In other words, lots of people would like the knowledge taught in the great universities, but that demand goes unsatisfied because of selective admissions requirements, tuition, and geography.
MOACs are the first volley in figuring out this untapped market. Those that dismiss MOACs as irrelevant are missing the bigger picture of what early stage disruption looks like.
Specifically, according to Christensen, here is the recurring dynamic: the new entrants siphon off work from the bottom-end -- work that the high-end says it does not want anyway. The cycle repeats itself a few times until, much to the incumbents' surprise, the bottom-end becomes more economically relevant and powerful. Why does top-end let this happen? Because the incumbents have come to view success as elite status and high margins, which is an unrealistically high long-term bar unless you are continuously innovating. Eventually, the so-called high-margin niche becomes insufficient to sustain the enterprise, and giants fall -- see the automotive industry, steel, computer hardware, televisions, consumer electronics, etc.
That said, does the university model of education have a life cycle, or is it above these coarse market considerations? I think it probably does.
In the year 2013, lots of knowledge is free or incredibly cheap. Next year, even more, and so on for the foreseeable future. As a result, many people are able to become astonishingly knowledgable and skilled because of the sheer joy of learning and becoming more competent. It turns out that university credentials are a pretty noisy signal for knowledge and competence -- a small positive correlation, yes, but not much more. This is an information gap problem.
In terms of sheer productitivity, most employers would prefer the folks who are driven to learn and continuously improve. Google has already figured this out, as a substantial portion of their high-end workforce has never completed college. Google employs them for their abilities, not their degrees.
When opportunity is unbundled from university credentials -- i.e., the information gap problem described above becomes cost-effective to solve -- the demand for university education as it currently exists (expensive and in limited supply) will go down. From a social perspective, this is a good thing. But it means that universities will have to innovate in the years to come in order to justify our tuition and fees.
Sunday, October 27, 2013
There is an interesting article in The Times of India business section that says, essentially, large Indian corporations are realizing that legal strategy and compliance are too important to not elevate these functions to the C-Suite. As a result, the pay, influence, and prestige of in-house positions in India are now very much on the rise.
This is the same evolution that has occured in the U.S. over the last two to three decades, albeit the evolution appears to be occuring in India at a much faster pace. So any temporal gap in structure is unlikely to be permanent.
This dynamic reminds me of my visit to India in 2009, when Marc Galanter and I spend time with several law firm leaders. One of the most striking features we noticed is that all the name partners were alive and very much in their prime. (In the U.S., the equivalant year would have been roughly 1940.) These lawyers very much enjoyed being engaged on the future of India. And unlike the U.S. or U.K., where the market is now defined by league tables, the topic of money never came up -- granted these Indian lawyers were all making plenty of it.
One of the things most on the minds of the Indian law firm leaders was how they could create a vital, useful organization that would survive them. So, much to our surprise, the India law firm leaders discussed things like Kaplan Balanced Scorecard for determining partner compensation (based on the work HBS Professor Robert Kaplan). Another leading law firm, Nishith Desai, constructed its entire firm based on the best practices of professional services firms worldwide. This was the result of a 20-year reflection on this topic by the firm's founder, who is also still in his prime. See Nishith Desai, Management by Trust in a Democratic Enterprise: A Law Firm Shapes Organizational Behavior to Create Competitive Advantage, Wiley Journal of Global Business and Organizational Excellence, Sept/Oct 2009.
It was almost as if the Indian bar was skipping 100 years of evolution and instead decided to converge immediately on the state of the art. Well, the same may be happening in India legal departments.
Wondering what a Kaplan Balanced Scorecard looks like? Here is a good sample.
Tuesday, October 22, 2013
My colleague and collaborator, Chris Zorn, is teaching a course at Penn State called "Big Data & the the Law." It draws upon several disciplines, including the law. See BDSS. He has been telling me about the crazy creative projects that are taking root in this class, which includes aspiring statisticians, geographers, political scientists, sociologists, public health professionals, and information science folks (alas, no law students, though the course was open to them).
Data visualization is one of the lynchpins of big data interpretation. Below is a very good example. It was generated by Josh Stevens, a grad student at Penn State who is enrolled in the class. I am told this specific work flowed out of the GDELT hackathon hosted by BDSS a few weeks ago. Kind of useful for allocating scarce resources to reduce violent conflict. Uses both time and space. For the full context, see this post.
Sunday, October 13, 2013
General counsel from large legal departments are becoming increasingly skeptical of the value provided by leading brand-name law firms, such as the AmLaw 20 or the Magic Circle. That is the conclusion of some compelling research just posted on the HBR Blog Network, the online idea forum run by Harvard Business Review.
The research was conducted by AdvanceLaw, which is a company that vets law firms and lawyers on an as-requested basis on behalf of legal departments. Some of AdvanceLaw's clients include Google, Nike, Sherwin-Williams, Lenovo, Towers Watson, Mastercard, Panasonic, eBay, Mastercard, Deutsche Bank, McDonald's, Molson Coors, Nestle, Heinz, Clorox, Unilever, CSS, Starwood Hotels, etc.
AdvanceLaw is a good example of what Richard Susskind calls a "closed legal community." See Tomorrow's Lawyers, chapter 5. Some essential background on AdvanceLaw is discussed below. But I am sure readers want to see the data first. The reported research was based on responses from 88 general counsel, who answered two questions:
- How does law firm pedigree affect their buy decision for a high-stakes matter?
- Is law firm pedigree associated with more or less client responsiveness?
Below are the results posted on the HBR Blog Network:
Readers are probably wondering, "Who is AdvanceLaw and why are they asking these types of questions?" I have some intel on this topic.
AdvanceLaw was formed four years ago by Firoz Dattu, a Harvard-trained lawyer who spent time in BigLaw (Paul Weiss). Firoz eventually found his way to the Corporate Executive Board, which a publicly traded company (NYSE: CEB) that specializes in subscription-based research organized by industry and function. CEB uses the aggregated research for value-add services such as benchmarking and best practices.
Because they specialize in factgathering for strategy and management, CEB has a long history of employees leaving to start niche businesses. That is what happened here. Firoz helped launch, and ultimately ran, the General Counsel Roundtable (GCR), which is a CEB functional group that cuts across industries. I have been to a GCR meeting (it is invitation-only for outsiders). Suffice to say that a persistent theme of conversation was controlling legal costs without compromising quality. A seemingly tall order, right?
Firoz started AdvanceLaw because of perceptions by general counsel that they were being overcharged and underserved by large firms in the major markets. Any GC who has reviewed data from TyMetrix would quickly draw the same conclusion, as a large firm lawyer with 20-years experience in, say, Minneapolis often has a lower billing rate than a second-year at a mega-firm in NYC. AdvanceLaw has positioned itself as a trusted advisor that can provide reliable guidance in shopping for value outside the big brand-name firms.
So how does this service work? As noted earlier, AdvanceLaw is an example of a closed legal community. To get into the AdvanceLaw network, prospective law firms are run through a rigorous RFP process that evaluates things like expertise, innovation, quality, compensation systems, and track record on diversity.
If a firm makes the AdvanceLaw cut, they start getting assignments from participating legal departments. But here is the enormous differientator. Feedback is collected by AdvanceLaw and shared with the law firm and other AdvanceLaw legal departments. What is the effect?
- For law firms, changing their behavior to (a) protect their reputations, and (b) get more work.
- For legal departments, to the extent they are getting value, migration of their legal work out of pedigreed law firms in the major markets to lower cost yet high quality regional and super-regional firms. The savings are roughly 30-40% with no loss in quality and better responsiveness. Some of the winners in the AdvanceLaw tournament are listed here.
AdvanceLaw also has a globalization overlay, which has been created with GC assistance. For instance, in Argentina and India, AdvanceLaw works with quite prominent firms who also exhibit efficiency. In the UK and Canada, the firms are substantial players, but are slightly less pedigreed than the Magic Circle and Seven Sisters, respectively.
So let's boil down AdvanceLaw's business model into its simplest terms: It gathers information so they legal departments don't pay excessive prices for the CYA (cover-your-ass) benefits of hiring high-prestige Big Law.
CYA still matters, of course. But through AdvanceLaw, pedigree is being given a more accurate valuation. A likely large second-order effect of AdvanceLaw is the acceleration of AFAs through AdvanceLaw firms, as feedback (on quality) and publicity (to drive volume) is what is needed to make that transition.
Susskind is right. Closed legal communities are going to be major disruptors in the legal marketplace.
Monday, September 23, 2013
A few years ago I had the good fortune of teaming up with Rachel Zahorsky for a series of feature stories in the ABA Journal, including "Paradigm Shift" (July 2011), "The Law School Bubble" (Jan 2012), and "The Pedigree Problem" (July 2012). The fourth article, "Who's Eating Law Firms Lunch," is now online; and without a doubt it is my favorite.
Why? Because of the final vignette in the story, which features Dan Katz of ReInvent Law fame. We were sitting at the bar at the January 2013 AALS Conference in New Orleans when Dan told me this story. My jaw just dropped. Dan has faith in his students, just like Bellotti had faith in him. Dan believes, so Dan just does. No fear. No bullshit. It was, suffice to say, quite refreshing.
I am reposting the whole vignette in the hope that a few more academics, lawyers, and law students will read it. The title of the post is the last line in the story. To my mind, that Dan Katz line sums up the next ten years of innovation in legal education. Please keep reading until you get to that final line. The insight is worth the effort.
For the past two years, MSU’s Katz was the only full-time law professor who spoke at the LegalTech conference. Katz and Knake are creating a curriculum relevant to the emerging law and technology sector, albeit primarily for companies like Novus Law and Recommind, whose competitive advantage is rooted in process and technology.
Within the legal academy, Katz is an anomaly. Aside from his JD, he has a PhD in political science and public policy from the University of Michigan. However, he focused almost all of his graduate study on complex systems. It’s a relatively new scientific field that uses mathematical modeling to understand how a multitude of human and nonhuman factors interact and influence one another. Human society and the human brain are two examples of complex systems. Neither can be effectively modeled by conventional math or statistics.
The late Larry Ribstein at the University of Illinois was one of Katz’s early mentors. When he went into teaching a few years ago, Katz says, Ribstein told him: “I bet you must feel like an alien. I greatly admire your work. You are definitely on the right track. But the rest of the legal academy is just not ready for you.”
In June 2011, Katz joined the faculty at MSU Law. Michigan State partnered with the Detroit College of Law in 1995 and moved the law college into a building in East Lansing two years later. Though the school’s rebranding efforts did raise its profile, to most of the profession, MSU Law remains a nonprestigious regional law school located in the heart of the Rust Belt.
None of this dissuades Katz from his sincere belief that it is possible to turn any institution into the preferred recruiting grounds for the nation’s emerging law-and-tech industry.
“When I was 18 years old,” explains Katz, “I had the privilege of joining a transformative organization”— as a kicker for the University of Oregon football team, the Ducks. “We were in the Pac-10, but it’s in Eugene, Ore., where it is often cloudy and raining. We had no shot at all with the top recruits from Southern California. So coach Mike Bellotti had to figure out ways to stretch and optimize what some might call second-tier talent.
“Oregon is now a national powerhouse, but the seeds of that success were sown much earlier. It was difficult to be bigger or faster than USC or UCLA. So Coach Bellotti decided we would be better on the details of the game. We would be better conditioned and we would pay significant attention to special teams. Our emphasis on special teams got us better field position. And by the third or fourth quarters, our opponents would have their hands on their burning legs. But because of our conditioning regimen, we had more stamina. Our success became contagious. Over time, we were able to get prized recruits. It was a culture of innovation.”
During Bellotti’s tenure at Oregon, from 1995 to 2008, the Ducks had only one losing season, blotting out decades of mediocre performance. The year that Katz graduated, the Ducks were co-champions of the Pac-10, a feat that makes him beam with pride.
Katz’s “secret sauce” for ReInvent Law is arguably much more important than a degree in complex systems. He looks at the 25 students entering the ReInvent Law Laboratory as raw human potential. Katz also actively recruits potential law school applicants to his program, though he declines to discuss his strategy.
Katz understands that the most attractive candidates for the law and technology sector are those with special skills that are often obtained through prelaw work experience. “But there is no reason why some of those key skills and experiences cannot be learned and obtained right here,” Katz says of the MSU program.
He notes that virtually all law students have high cognitive ability. He feels the key to their future success is mastery of domain-specific knowledge—often in areas that are complementary to law—and the ability to collaborate across disciplines. This requires engagement and an immense amount of time spent on the task. So how does one develop the educational program that will prepare the law student for legal-tech jobs—some that may not yet exist?
“This,” Katz says, “is just an education design problem."