Sunday, November 29, 2015

The UK's Apprenticeship Levy -- a helpful reset to the legal labor market?

LawsocietyThe Law Society Gazette reports a new apprenticeship levy that will be imposed in 2017 on UK employers with more than £3 million in payroll.  The Gazette notes that the levy, which totals .5% of payroll, will sweep in nearly 200 legal employers. 

The program has a potentially clever twist that could prove to be an effective economic stimulus for the UK economy. Employers get a credit for the cost of their current apprenticeship programs.  For the UK legal industry, this means that the bigger firms will be fully paid up just by running their current training contract programs. Yet, the article also notes that "the levy may force a number of firms to develop apprenticeship programmes so that they get their money back."

This is an idea that draws on both liberal and conservative principles.  It's liberal because it mandates, through a tax, a strong national policy that favors human capital creation. Yet, it's also conservative because it lets employers opt out of the tax by running their own apprenticeship programs.  The result is an increase in paid entry-level training for young people and, invariably, some infrastructure being developed around ongoing apprenticeship programs, likely from nonprofits and trade associations who serve or orbit around specific industries. 

In the United States, there are roughly 3,000 law firm employers with a payroll of $5 million or more.  They account for roughly half of the $91 billion annual payroll of all US law firms (NAICS 541110 Offices of Lawyers).  Many law firms are not hiring because client demand is sluggish and it's perceived as more cost effective to use senior personnel who are already trained.  As a result, the US legal profession is graying significantly.  See Is the Legal Profession Showing Its Age, LWB, Oct 12, 2014; What is Driving the Demographic Gap between BigLaw Leaders and their CEO/GC Clients?, LWB, Sept 1. 2015.  

Consider the benefits of a program like this operating in the US.  A .5% apprenticeship levy on $45 billion would mean that no less than $225 million per year would be invested in entry-level training contracts in the legal field, with a significant number of legal employers getting off the sidelines to create their own programs.  Astute bar associations would likely step in to provide logistical and administrative support.  Further, the US Department of Labor already has a detailed legal framework around apprenticeships.

With this kind of financial and administrative support, it is plausible to imagine the US legal profession moving to a true apprenticeship model where training contracts replace the 3L year of law school.  I acknowledge this all sounds very fanciful, but a relatively modest employer apprenticeship tax may be better national policy that asking young people to take on more education-related debt. 

November 29, 2015 in Current events, Innovations in law, New and Noteworthy, Structural change | Permalink | Comments (0)

Tuesday, September 22, 2015

William H. Neukom Fellows Research Chair in Diversity and Law

On the heels of the ABF Research Professor job announcement, here is a second career-making opportunity from our friends at the American Bar Foundation.

William H. Neukom Fellows Research Chair in Diversity and Law

The American Bar Foundation (ABF) invites applications for its William H. Neukom Fellows Research Chair in Diversity and Law. This is a one-year, visiting position for the 2016-17 academic year. The ABF anticipates that the Neukom Chair will become a long-term position in the future.

We seek an outstanding scholar with a distinguished record of scholarship in law and the social sciences who is conducting empirical research on diversity and law, broadly conceived. Topics of interest include, but are not limited to, diversity in the legal profession and other institutions of justice; the impact of diversity on legal processes, legal institutions, and public policy; the roles of race, gender, disability, and sexuality in legal institutions and legal processes; and the interaction between legal processes and inequalities of race, gender, disability, and sexuality. Applicants from all social science fields, history, and law will be considered.

In addition to pursuing their own research, the Neukom Fellows Research Chair will have the opportunity to participate in the ABF’s expanding program of research in diversity and law. During the visit the Neukom Chair will be expected to be in residence at the ABF, and to make at least one formal presentation on the work they are doing at the ABF.

The ABF is an independent, scholarly research institute committed to social science research on law, legal institutions, and legal processes. Its faculty consists of leading scholars in the fields of law, sociology, psychology, political science, economics, history, and anthropology. The ABF is strongly committed to diversity in hiring.

Review of applications will begin on November 15, 2015, but the search will be ongoing until the position is filled. We ask that applicants submit a letter of application, a curriculum vitae, a brief (no more than 2-page) description of current research and a list of three references.

Application letters should be addressed to Ajay K. Mehrotra, Director, and sent in electronic form to Erin Watt, Executive Assistant, at with the subject line “Faculty Search.” Queries about the application process can be directed to Ms. Watt at (312) 988-6582.

The American Bar Foundation encourages diversity in its workforce and seeks to provide equality of opportunity for all applicants and employees. All persons are considered for positions on the basis of job-related requirements. All decisions regarding recruiting, hiring, promotion, assignment, training, termination, and other terms and conditions of employment will be made without unlawful discrimination on the basis of race, color, national origin, ancestry, sex, sexual orientation, gender identity or expression, religion, age, disability, veteran status, pregnancy, or marital status, in accordance with the ABF’s commitment to equal opportunity and all governing laws.

September 22, 2015 in New and Noteworthy | Permalink | Comments (0)

American Bar Foundation Research Professor

AjayFor those in the academy doing interdisciplinary work in the law & society area, being a Research Professor at the American Bar Foundation (ABF)  is very close to nirvana.  Moreover, my former Indiana colleague Ajay Mehrotra is the ABF's new Director.  Based on our 12 years of working together, I can attest that Ajay would be an outstanding mentor and boss, albeit this description also describes his predecessor, Bob Nelson.  The ABF is just a great place to do potentially high impact research. 

Below is the official announcement for an ABF Research Professor opening. These positions come open only rarely

American Bar Foundation Research Professor

Pending budgetary approval, the American Bar Foundation (ABF) invites applications to join its Residential Faculty as a Research Professor. Beginning in the 2016-17 academic year, the position is an ongoing one, subject to periodic performance reviews.

We seek earlier-stage candidates with a PhD and/or JD with the potential for exemplary scholarship in law and the social sciences. Research area, discipline, and methodology are open. The ABF is strongly committed to diversity in hiring.

The ABF is an independent, scholarly research institute committed to social science research on law, legal institutions, and legal processes. Its faculty consists of leading scholars in the fields of law, sociology, psychology, political science, economics, history, and anthropology.

Research professors work independently. They are responsible for identifying appropriate topics for research, seeking external funding when possible, conducting research, and authoring books and articles to be published in scholarly journals.

The ABF offers competitive salary and benefits along with research support. If jointly appointed with law or social science faculties of Chicago-area institutions, the ABF works closely with these institutions to coordinate on matters such as salary, benefits, and other work arrangements.

Review of applications will begin on November 15, 2015. We ask that applicants submit a letter of application, a curriculum vitae, a writing sample, a brief (no more than 2-page) description of current research and plans for future research, and a list of three references.

Application letters should be addressed to Ajay K. Mehrotra, Director, and sent in electronic form to Erin Watt, Executive Assistant, at with the subject line “Faculty Search.” Queries about the application process can be directed to Ms. Watt at (312) 988-6582.

The American Bar Foundation encourages diversity in its workforce and seeks to provide equality of opportunity for all applicants and employees. All persons are considered for positions on the basis of job-related requirements. All decisions regarding recruiting, hiring, promotion, assignment, training, termination, and other terms and conditions of employment will be made without unlawful discrimination on the basis of race, color, national origin, ancestry, sex, sexual orientation, gender identity or expression, religion, age, disability, veteran status, pregnancy, or marital status, in accordance with the ABF’s commitment to equal opportunity and all governing laws.

September 22, 2015 in Current events, New and Noteworthy | Permalink | Comments (0)

Wednesday, September 16, 2015

In India, Big 4 and Elite Law Firms in Direct Competition for Highly Lucrative Advisory Work

Lawyers may have a monopoly over the practice of law, but what exactly does the practice of law encompass?  In most common law jurisdictions, the term is not even defined.  And there's likely a self-interested reason why.  Ambiguity produces uncertainty, and uncertainty is a major source of business risk.

In the face of significant uncertainty, why would investors fund a business that encroaches on lawyers' most lucrative work when they'll have to hire a battalion of lawyers to defeat the entire universe of lawyers in front of a judge who used to be a practicing lawyer (and may be one again)? Many lawyers would get rich losing this case for you.

Well, ambiguity may not be enough to permanently fend off the invasion.  There is a controversy taking shape in India that may foreshadow the end of the lawyer guild.  Under India's Advocates Act, only lawyers can own a law firm. Likewise, only chartered accountants can audit companies.  But what about advisory services related to business?  That's a area of tremendous potential overlap between these two professions.

Times-of-india-logoGlobally, the Big 4 have been making inroads on lucrative cross-border deal work -- not enough to mortally threaten the major law firms, but enough to get their attention.  Yet, according to this story in the The Economics Times (the leading business paper in India), it's the elite law firms putting the hurt on the Big 4, poaching talent in some of the Big 4's most lucrative practice areas.  Here's how the Indian journalists tell it:

MUMBAI: Two months after the Delhi Bar Council sent a legal notice to top professional services firms EY, KPMG, PwC and Deloitte, the simmering hostility between the Big 4 and the legal fraternity is increasingly coming out in the open.

Earlier this month, Zia Mody's AZB & Partners [the Wachtell Lipton of India] scooped up six forensic experts from EY, a move that has been seen by industry players as part of growing competition between leading law firms and consultancies for business, encroaching into each other's traditional bastions. ...

[Zia Mody, the managing partner of AZB, commented,] "The compliance and investigation practice that we have formalised would help us in due diligence, Indian anti-corruption law investigations, asset-recovery cases, private equity-related post investment investigations and in some anti-trust investigation cases."

Top legal firms in the country are diversifying into forensic operations and undertaking commercial diligence and investigations for their clients.

This comes at a time when consultancies like EY and KPMG are bulking up their teams beyond the traditional forte of audit and tax practices to expand into advisory services. ... 

"What law firms are doing is part of their evolution into full service providers," said Lalit Bhasin, president of the Society of Indian Law Firms, which in July filed a complaint against the Big 4 with the Bar Association of India, saying that they were practicing law without authorisation.

Side note on Lalit Bhasin -- he is the most prominent spokesperson for keeping in place the longstanding prohibition against foreign law firms operating inside India.  He is obviously not too keen on Big 4 accounting firms getting into his business.  The Times quotes a senior partner of a Big 4 firm, speaking on a condition of anonymity,

"The genesis of the problem is: lawyers are a close-knit community and if you don't belong to that club, you don't get lucrative work.  ... Now, the consultancies are increasingly getting their foot in the door, and doing the work at much lower price for which the lawyers would charge a bomb."

The story notes that the law firms and accounting firm are now competing to their mutual detriment, albeit the clients are unlikely complaining:

Consultancies and law firms are competing with each other in several other areas as well, and this is hurting the bottom lines of both sides as undercutting of fees has become rampant. "They (consultants) do an investment banking deal for a mere Rs 5 lakh [~$8000 US], for which a good law firm would charge around Rs 60 lakh [$90,000 US]," said the managing partner of a New Delhi-based big law firm.

Forensic is one of the most profitable business verticals for the Big 4. The total pie for forensics in India is estimated to be around .`850 crore [~$160 million] and is growing at 15-20 per cent year on year, industry experts said. Competition from lawyers, therefore, hurts the big auditors who among themselves control about 80 per cent of the market in India. Smaller rivals such as Alvarez & Marsal, FTI and Kroll [two US-based companies] control the rest.

Suffice it to say, the Big 4 aren't afraid to fight the elite bar in virtually any jurisdiction, as they have deep pockets and a large number of lawyers on their payroll, all of whom, we can be quite sure, are not engaged in the practice of law, whatever that term means.  

This is the beginning of the end of an era, and that's a good thing.  We lawyers/legal professionals will reinvent ourselves by finding new ways to add value.  In fact, that is already happening.  In the long run, we'll feel richer for it. Below is an infographic from The Times story that summarizes the Indian lawyer-accountant standoff.


September 16, 2015 in Cross industry comparisons, Current events, New and Noteworthy, Structural change | Permalink | Comments (0)

Wednesday, September 9, 2015

"In Praise of Law Reviews (And Jargon-Filled, Academic Writing)"

SunsteinThat is the title of a forthcoming article by Cass Sunstein in the Michigan Law Review.  Sunstein has unusual standing to make this case because, in addition to his academic perches at Chicago and Harvard Law, he was tapped by President Obama to lead the Office of Information and Regulatory Affairs

Sunstein has written a remarkably thoughtful and balanced essay that I would encourage any fairminded lawyer, law student, and law professor to read.  Sunstein begins by recounting how pulling the levers of power in government made several of his fellow academics despair over the prospect of returning to academic writing. When Sunstein probed further, a colleague sent along a passage from Theodore Roosevelt:  

"It is not the critic who counts; not the man who points out how the strong man stumbles, or where the doer of deeds could have done them better. The credit belongs to the man who is actually in the arena, whose face is marred by dust and sweat and blood ... ."

It's a powerful passage that can be used to diminish those who write academic articles. But Sunstein subsequently references another quote, this one from John Maynard Keynes:

[T]he ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood. Indeed the world is ruled by little else. Practical men, who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist.

Sunstein acknowledges that Keynes' message is self-serving and unnecessarily demeans the intellect of those who carry the burden of leadership. But he also sees a kernel of truth--difficult problems often get solved by applying the grand ideas and concepts of academics.  The impact of academics is rarely immediate, but it can be enduring and profoundly influential.

To illustrate his point, Sunstein identifies a list of seven recent books by academic authors (by Balkin, Vermeule, Mashaw, Kaplow & Shavell, Revesz & Livermore, Cross, and Adler). All of them can trace their origins to earlier law review articles, all of them are hunting "big game", and most if not all of them are unlikely to be of immediate practical to the busy practitioner or judge.  But Sunstein suggests that we should be taking a longer view. Some of these books were on his shelf when he served in the government. He used them to address real world problems. The rest are scaffolding to reach something higher.

Sunstein organizes the core of his essay around the criticisms of the late Yale law professor Fred Rodell, suggesting that the author of the famous Goodbye to Law Reviews got it only half right.  Sure, the style and length of law review articles limit their readership, but Sunstein observes some countervailing benefits:

When they are working well, law reviews strongly discourage arguments that are glib, sloppy, circular, or narrowly ideological. They also require both development of and sympathetic engagement with competing points of view, rather than easy or rapid dismissals. Counterarguments are strongly encouraged, even mandatory. There is a kind of internal morality to the genre, one that is (I think) connected with and helps account for some of its rigidity. The morality involves respect for the integrity of the process of argument, which entails respect for a wide range of arguers as well. 

As someone who has written numerous law review articles, this description strikes me as entirely accurate.  Most of my work these days is applied--designing and measuring law school courses, evaluating outcomes, and trying to re-start the labor market so it clears on something more that LSAT scores of entering students.  Within this applied realm, which borders on the arena, I am often viewed as someone who is highly creative.  Yet, I can safely say that nearly all of the credit goes to the mental discipline and knowledge obtain through academic writing. That process fundamentally transformed my intellect. Further, I felt that way at the end of my first law review comment, which took roughly 500 hours to research and write during my 2L year of law school.  So I wanted to do it again.  

A lot of smart people in law tend to focus on what is immediate and practical--i.e., what will help with the work on their desk.  I can see this mindset in nascent form in a subset of my students who become impatient with classroom forays into legal theory or the social sciences.  I don't think this group can be won over.  By disposition, they can't see the value in reading academic work, so paying for its production seems even more pointless.

Granted, this conclusion does not resolve the harder issue of whether the current system of legal education over-incentivizes the production of legal scholarship by mandating, through ABA and AALS requirements, that most teachers be academic scholars. What is the optimal number of lawyer-scholars who should be subsidized by student tuition as opposed to grants or endowment? It may be less than the current number. Further, how those spots get allocated is another challenging issue with no simple resolution.  

That said, Sunstein is clearly right--whether they realize it or not, every capable legal problem-solver is standing on the shoulders of prior academic work.  It is misguided to conclude that future generations won't need new and better ideas vetted through an academic process.

September 9, 2015 in New and Noteworthy, Scholarship on legal education | Permalink | Comments (1)

Thursday, August 6, 2015

How is the entry-level legal job market in Australia?

AlsaNot good.  There are more law graduates than jobs, yet law schools are making matters worse by admitting more students in order to generate subsidies for other parts of the university. That the basic charge of the Australian Law Students Association (ALSA), according to this story in the Lawyers Weekly, a publication that covers the business of law in Australia.

Legal education is Australia is very different than the U.S.,  yet the dynamics of the two entry-level markets seem to be converging.  Law has historically been an undergraduate degree in Australia (LLB), but in recent years the JD has been added as a new and more prestigious way into the profession. Here is the statement of an ALSA spokesperson based on recent survey results of the ALSA membership.

ALSA are of the position that there is still an oversupply of graduates because of the increasing sizes of law schools and the duplication in the number of law schools across the country. ...

Many who have undertaken the Juris Doctor particularly expressed concerns in their survey responses, highlighting that they undertook the postgraduate law degree to further their job prospects. Instead, they are facing the worrying reality that there are fewer jobs available for law graduates as well as the fact that they are completing their degrees with a sizeable student debt.

The article then goes on to describe growing law student anxiety over employment and student loan debt.  Wow, different system but a very similar result.  

One of the advantages of the Australian LLB degree is that it is often combined with another undergraduate degree, typically by adding one year of additional study.  As a result, many LLBs don't go on to qualify for practice, but the legal training probably augments their worldly knowledge and critical thinking skills.  But alas, the Australians are starting to dilute their extremely generous higher education subsidies -- we are just much further down that road. Further, the true undercurrent here is the growing insecurity facing virtually all knowledge workers, Australian or US.  Legal education is just the bleeding edge of this problem.

August 6, 2015 in Current events, Data on legal education, Data on the profession, New and Noteworthy | Permalink | Comments (0)

Tuesday, August 4, 2015

Metrics and Legal Ops Professionals

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. 

August 4, 2015 in Blog posts worth reading, Current events, Data on the profession, Law Firms, Legal Departments, New and Noteworthy, Video interviews | Permalink | Comments (0)

Saturday, August 1, 2015

Legal Analytics to Build Substantive Legal Strategy

RavellexmachinaLex Machina and Ravel Law are two start-ups in the legal analytics space (I call companies like this "toolmakers"). Per an invite that arrived in my email yesterday, these Lex Machina and Ravel are collaborating on an upcoming webinar that shows lawyers how to use legal analytics to build a substantive legal strategy.  And not just any strategy, but one more likely to win.

Is this smoke and mirrors or the real deal? That remains an open empirical question.  But it's worth noting the venture capitalists who backed these companies are betting on the proposition that humans + machines > humans or machine. (This is Dan Katz's formulation.) For lawyers interested in staying current on the legal market (most of us, right?), it's likely worth attending.   Sure, Lex Machina and Ravel will be hawking their own products, but hey, educating your prospective clients is how one builds a market for complex technical products.  This skill will eventually be taught in law schools -- at least the good ones.  It is worth noting that both Lex Machina and Ravel trace their origins back to Stanford Law.  

Here is the essential information on the webinar.

How can you employ Legal Analytics in your practice to get clients and win cases?

New legal technologies are transforming the practice of law by enabling lawyers to uncover trends in the behavior of judges, parties, law firms and attorneys.

Ravel Law's case law analytics and Lex Machina's IP docket analytics enable lawyers to make data-driven decisions about case strategy and tactics.

Click here to register for a live 45-minute webinar on Thursday, August 6th at 11:00 am PT.

Host: Ralph Baxter, Advisor, Writer, and Speaker, Former Chair, Orrick 

Speakers: Owen Byrd, Chief Evangelist & General Counsel, Lex Machina & Daniel Lewis, CEO & Co-Founder, Ravel Law

Related posts:

August 1, 2015 in Current events, Innovations in law, New and Noteworthy | Permalink | Comments (0)

Wednesday, July 29, 2015

"Solicitors 'in denial' about threat from accountants"

Legalservices (321x207)That's the headline from today's Law Society Gazette, the publication of record for solicitors in England and Wales.  The UK is fairly far along in liberalization of its legal markets, progressing from the Clementi Report in 2004 to the Legal Services Act 2007 to the licensing of Alternative Business Structures in 2012.  Now several hundred entities have obtained ABS status.  

The Gazette article reports that accountants are poised to be large players in the ABA space:

Accountants will soon be competing directly with solicitor firms ‘on every high street in the country’, according to a leading financial advisor to the legal sector.

Ian Muirhead, chairman of Solicitors Independent Financial Advice, said he expects 750 accountancy firms – three times more than first envisaged – to move into probate work after securing an alternative business structure licence.

The Institute of Chartered Accountants in England & Wales has accredited 113 entities as an ABS since last October, having been accepted as an approved regulator almost a year ago. A further 34 applications are being processed.

Speaking at a Westminster Legal Policy, Muirhead said too many solicitor firms are ‘in denial’ about the threat from the accountancy profession.

‘Success will go to those who can manage businesses and I query whether that’s going to be the solicitors or whether solicitors are going to be the back room boys,’ he said.

Muirhead argued that law firms’ response so far has been focused on consolidation, mergers and acquisitions – but this risks playing into rivals’ hands.

‘[The response is] safety in numbers, more of the same, not thinking outside the legal silo, and therefore missing the opportunity of which many new ABSs are availing themselves, of providing a more diversified and holistic client service,’ he added. ... 

Some U.S. lawyers believe that liberalization won't come to the U.S. because the legal industry is too balkanized by state bar authorities.  

I think this view, however, is likely naive. The market can change because regulators change the rules (the UK). Alternatively, the market can change because clients change their buying habits in favor of nontraditional legal service providers that are financed by sophisticated nonlawyer investors (the US).  See, e.g., Is Axiom the Bellwether for Disruption in the Legal Industry, LWB, Nov. 10, 2013.

In the US, it is probably true that regulators lack the stomach to initiate a regulatory action where the client ostensibly being protected is a Fortune 500 corporation.  If the action ends up in federal court, the bar officials risk looking like protectors of the guild and have a decent chance of losing.  The prohibition against nonlawyer investment (MR 5.4) is based on the assumption that the nonlawyer profit motive will compromise lawyer independence, thus harming the unwitting and unsophisticated legal consumer.  But that does not describe IBM's or JP Morgan's relationships with sophisticated LPO or analytics shop (or any general counsel charged with stretching his or her legal dollar). As a result, the venture capital money flows in.

When liberalization is viewed in this light, there are probably more similarities between the US and UK than we might want to acknowledge. 

July 29, 2015 in Current events, Data on the profession, Innovations in law, Law Firms, New and Noteworthy, Structural change | Permalink | Comments (2)

Sunday, April 12, 2015

Another Example of Using Big Data to Improve Odds of Winning in Court

Back in February, I wrote a post on The The Early Days of Legal Analytics.  It discussed some of the innovations at Lex Machina, a legal start-up that uses Big Data to value contested patents and develop a litigation strategy designed to maximize value / minimize risk.  I recently came across another company, Premonition, that claims to use artificial intelligence to select lawyers with the best odds of achieving a favorable result. See Premonition Infographic at bottom of this post.

I spend a lot of time on the road talking to law firm lawyers and legal innovators, including legal start-ups.  Many large firm lawyers tend to dismiss new innovations without stopping to listen to, much less gather, relevant facts.  Likewise, there is a lot of puffery among legal start-ups as they try to land their first few customers.  Thus, I tend to apply a windage factor to accurately interpret what I am being told.

The image below contains Premonition's simple, one-sentence pitch.  I don't know about the product, but the concept is pretty clear.


The core benefit Premonition appears to offer is a list of lawyers with winning track records in front of specific judges. We don't need artificial intelligence (AI) to make that calculation.  A win-rate is a simple descriptive statistic, even if it has been filtered for a variety of matching criteria.

That said, AI could come in handy in building the requisite data sets.  As explained on Premonition's website, courts don't construct their case management systems so they can be vacuumed out by data mining companies. Indeed, local court officials would likely to be hostile to such requests because any resulting statistical model is unlikely to make them look good.  Indeed, the purpose of the model is, at least in part, to identify and exploit imperfections in the judicial process.  

Because the courts have no incentive to make life easy for Big Data vendors, Premonition's Chief Innovation Officer, Toby Unwin, claims to have tackled the data assembly problem by building a technology that scrapes and buckets the necessary data from the jumbled chaos of web portals for state and local courts.  Such a task, in theory, can be performed by fairly standard machine learning, which qualifies as AI, at least in some circles.  

Assuming Premonition has built a machine that can calculate win-rate of lawyers, is that information valuable to clients trying to maximize the likelihood of a favorable result?  I don't know, but its plausible enough to test with data.

Some data skeptics will argue that win-rates, whether high or low, are just artifacts of any normally distributed outcome.  The reasoning runs, "Two, three, and four sigma events occur in the ordinary course of life, but regression to the mean is pulling them back to the center. Thus, they are poor predictors of the future."  This reasoning is why many people buy indexed funds rather than shares in actively managed mutual funds.  Cutting the other way, the hedge fund industry is premised on the belief that some money managers are a lot better than others. Five-year return rates are aggregated and published in the industry trade press.  Some of the returns may be due to random luck, but some could be attributed to superior skill.  It is absurdly unlikely, for example, that Warren Buffet's success in buying and selling stocks is just a 60-year lucky streak.

In the case of win-rates in court, I can think of at least two plausible non-random factors that could affect outcomes:

  1. Judicial bias or favoritism.  Judges, either consciously or unconsciously, may react differently to the case depending upon the advocate.  One does not have to wade too far into the political science literature to find peer-reviewed empirical studies that reveal that judges are influenced by more than just facts and law. 
  2. The gap between credentials and bona fide skill.  Law has historically been a credence good.  This means the market relies on elite credentials and firm reputation as a proxy for skill.  Yet, it is plausible that some lawyers may lack the pedigree to get hired by large, elite law firms, yet they go on to develop outstanding legal skills, perhaps because of superior drive, intellectual curiosity, or "early at-bats" as a prosecutor or public defender. If these folks exist, Big Data can likely find them.

I can't vouch for Premontion's technology beyond two statements: (1) it sounds plausible, and (2) it is a waste of time to debate its usefulness because it's an empirical question that the market will answer in the relatively near term.  

Below is one of Premonition's infographics.



April 12, 2015 in Cross industry comparisons, Current events, Innovations in law, New and Noteworthy | Permalink | Comments (1)

Saturday, February 7, 2015

The Early Days of Legal Analytics

LexMachina-logo1There is an interesting story in Forbes on Lex Machina, a legal start-up that provides analytics for use in patent litigation.  See Dan Fisher, Stanford-Bred Startup Uses Moneyball Stats to Handicap Judges, Forbes, Feb. 2, 2015.  The company was created by faculty at Stanford Computer Science and Stanford Law.  As the company emerged from the University, the reigns were handed to Josh Becker, a Stanford JD-MBA.  To date, the company has raised $8 million in start-up funding.  According to the Forbes article, the company's clients include some of the nation's large technology companies plus one-third of the AmLaw 100.

What makes Lex Machina so interesting is that the company is not a NewLaw service provider that trying to take marketshare. Instead, Lex Machina is a toolmaker.  It is a true Big Data company that provides analytics to (a) value contested patents and (b) protect/maximize that value through a litigation strategy that is informed by data.  

The impact of Lex Machina is hard to decipher, primarily because if it does provide an edge, the customers are unlikely to be too vocal. Just like a hedge fund with an effective trading strategy, why advertise the ingredients of your secret sauce? Indeed, compared to other toolmakers (e.g., predictive coding, expert systems) Lex Machina's benefits are less about efficiency and more about affecting the outcomes of cases -- who wins and by how much.  If Lex Machina is truly delivering, it will eventually touch-off a Big Data legal analytics arms race akin to the quant revolution on Wall Street.  Dan Katz frequently makes this point, and I think he is right.  The Forbes article makes the point that Lex Machina is already moving into adjacent areas of IP law and general commercial litigation.  

The broader legal industry is unlikely to notice Lex Machina until it has a substantial liquidity event -- i.e., it's acquired or goes public, making if founders far richer than the BigLaw partners and in-house lawyers they currently serve.  

If we are looking for early signs of a tipping point for legal analytics, one marker may be the number of Stanford Law grads who are turning down entry-level opportunities in BigLaw to pursue legal start-ups.  In recent years, Stanford Law grads fresh out of law school have gone on to found other venture-backed legal start-ups like Ravel Law, Judicata, and Law Gives.  Back in 2013, The Stanford Lawyer (SLS alumni magazine) had an extensive write-up with several examples.  See Sharon, Driscoll, A Positive Disruption, June 4, 2013.  In 2014, Stanford's CSO offered a program titled, An Alternative to BigLaw -- Startups.

The legal world isn't going away; it's just changing.

February 7, 2015 in Cross industry comparisons, Current events, Data on the profession, Innovations in law, New and Noteworthy, Structural change | Permalink | Comments (0)

Sunday, January 4, 2015

Size of the US Legal Market by Type of Client

Washington, DC.  The AALS Section on Professional Responsibility hosted a vigorous discussion today on the evolving ethical duty of competency, a topic partially inspired by the recent changes to Model Rule 1.1 cmt. 8 (requiring lawyers to stay abreast of the "benefits and risks associated with relevant technology").  As part of this panel, I showed a chart on the size of the US legal market, which was promptly tweeted by CALI 's Director of Community Development, Sarah Glassmeyer, a law librarian who is a total data subversive in a style and manner I fully support.

Well, despite a less-than-optimal photo angle, the chart was retweeted and favorited, so I figured I ought to just post the actual chart here. [Click on to enlarge] Legal Market

In a competitive market, the threshold question, asked by potential entrants and those who might finance them, is often the same: "what is the size of the available (or addressible) market?" Because lawyers and law schools are feeling unprecedented economic pressure, I thought it would be worthwhile to run this exercise for the U.S. legal industry and break it down by type of client.

The figures above are estimates of 2014 receipts going to organizations and individuals in the business of providing legal services.  My calculations are derived from US Census Bureau data. They exclude the cost of in-house and government lawyers.  More granular calculation details will be laid out in a forthcoming publication.

At today's AALS Professional Responsibility session, technology was framed as an ethical issue. And that is certainly right:  technology can deliver enormous cost and quality benefits to clients, so we have both a fiduciary and professional duty to be up-to-date.  Yet, there is a flip-side here that is crucially important -- to ignore or fall behind on technology is to run the risk of commercial ruin. This axiom applies to lawyers in private practice and to law schools that want employers to hire their graduates. 

Building upon that theme, I used the Market Size chart to make two points today, one based on the high-end corporate market (right side of chart) and the other directed toward the individual consumer market (left side of chart). 

Re the corporate side, the data show that a relatively small roster of large corporations are spending vast sums each year on legal services -- more than $10 million per year for a publicly held company.  Because large national and international corporations are awash in a sea of growing legal complexity, they are turning to technology, process, and data to keep legal costs in line with overall company revenues.  From the perspective of a large corporate client, the typical junior law firm associate has little to offer.  A more seasoned partner or counsel is a better value, but this is by virtue of experience rather than technology or process.  As a result, law firm hiring remains stagnant, and more legal work is being taken in-house or given to LPOs or New Law legal service providers like Axiom, Elevate, or Novus Law.  It may take a generation for the law school--law firm--legal department supply chain to come into a reasonable alignment.  Right now, it's broken.

Re the individual retail market, the $232 annual legal spend per citizen means that there is not enough money go around to pay for all the legal need.   If a middle-class professional couple with kids has a contested divorce, that could easily chew-up $50,000 to $100,000 in legal fees.  A DUI is likely to cost $1,500.  A worker's comp claim might be 30% of an award.  Probate work runs well into the thousands.  In reality, most citizens go without.  One of our co-panelists today, retired US Magistrate Judge John Facciola, made the claim that 83% of American never talk to a lawyer to help them with a legal problem.  "The middle class is largely gone from federal court."  To my mind, technology is the only vehicle for tapping into a large latent market for legal services.  LegalZoom, Rocket Lawyer, Modria, Shake, and many other legal technology companies all see the potential here. And so do the venture capital and private equity firms that are funding them. 

 Today's panel was one of the most lively I have ever attended at AALS, owing in part to my excellent co-panelists but also an audience that asked some great, tough questions.  Many thanks to Andy Perlman (Suffolk Law) for organizing a terrific session and Natasha Martin (Seattle) for her skillful moderation of the panel.

January 4, 2015 in Current events, Data on the profession, Legal Departments, New and Noteworthy, Structural change | Permalink | Comments (2)

Tuesday, December 2, 2014

The Market for Law School Applicants -- A Milestone to Remember

In early 2013, Michael Moffitt, the dean of Oregon Law, was interviewed by the New York Times about the tumult affecting law schools. Moffitt, who is a very thoughtful guy, reponded, "I feel like I am living a business school case study.”  

I think the analogy to the business school case study is a good one.  In the nearly two years since that story was published, the market for law school applicants has actually gotten worse.

Yesterday's Dealbook column in the New York Times featured Northwestern Law Dean Dan Rodriguez (who also serves at President of the AALS) speaking candidly about the meltdown dynamics that have taken hold.  See Elizabeth Olson, "Law School is Buyer's Market, with Top Students in Demand," New York Times, Dec. 1, 2014. 

DanRodriguez"It's insane," said Rodriguez, "We’re in hand-to-hand combat with other schools." The trendlines are indeed terrible.  Year-over-year, LSAT test-taker volume is down another 8.7%.  See Organ, LWB, Nov 11, 2014.  So we can expect the situation to get worse, at least in the near term.      

I applaud Dan Rodriguez for this leadership instincts.  He is being transparent and honest.  Several years ago the leadership of the AALS went to great lengths to avoid engagement with the media. Dan has gone the opposite direction, inviting the press into our living room and kitchen.  

Want to know what leadership and judgment look like?  It looks like Dan's interview with Elizabeth Olson.  Dan's words did not solve anyone's problem, but his honesty and candor made it more likely that we help ourselves.  Because it's Northwestern, and Dan is president of the AALS (something the story did not mention but most of us know), and this was reported by Elizabeth Olson in the New York Times, the substance and tenor of discussions within law school faculties is bound to shift, at least slightly and in the direction favoring change.   

What is the de facto plan at most law schools these days?  Universities are not going to backstop law schools indefinitely. I think the sign below is not far off the mark.  


We are indeed living through a business school case study, which is both bad and good.   At many schools -- likely well more than half --  hard choices need to be made to ensure survival.  (And for the record, virtually all schools, regardless of rank, are feeling uncomfortable levels of heat.)   A law school needs cash to pay its expenses.  But it also needs faculty and curricula to attract students. The deeper a law school cuts, the less attractive it becomes to students.  Likewise, pervasive steep discounts on tuition reflect a classic collective action problem. Some schools may eventually close, but a huge proportion of survivors are burning through their financial reserves.  

Open admissions, which might pay the bills today, will eventually force the ABA and DOE to do something neither really want to do -- aggressively regulate legal education.  This is not a game that is likely to produce many winners.  Rather than letting this play out, individual law schools would be much better off pursuing a realistic strategic plan that can actually move the market. 

The positive side of the business school case study is that a few legal academics are finding their voice and learning -- for the first time in several generations -- how to lead.  Necessity is a wonderful tutor.  Law is not an industry on the decline -- far from it.  The only thing on the decline is the archetypal artisan lawyer that law schools are geared to churn out.  Indeed, back in 2013 when Dean Moffitt commented about living through a business school case study, he was not referencing imminent failure.   Sure, Moffitt did not like the hand he was being dealt, but as the 2013 article showed, his school was proving to be remarkably resourceful in adapting.

The good news resides on the other side of a successful change effort.  The process of change is painful, yet the effects of change can be transformative and make people truly grateful for the pain that made it all possible.  In our case, for the first time in nearly a century, what we teach, and how we teach it, is actually going matter.  If we believe serious publications like The Economist, employers in law, business, and government need creative problem solvers who are excellent communicators, adept at learning new skills, and comfortable collaborating accross multiple disciplines -- this is, in fact, a meaningful subset of the growing JD-Advantage job market.

In the years to come, employers will become more aggressive looking for the most reliable sources of talent, in part because law schools are going to seek out preferred-provider relationships with high quality employers.  Hiring based on school prestige is a remarkably ineffective way to build a world-class workforce -- Google discovered this empirically.  

From an employer perspective, the best bet is likely to be three years of specialized training, ideally where applicants are admitted based on motivation, aptitude, and past accomplishments. The LSAT/UGPA grid method misses this by a wide margin. After that, the design and content of curricula are going to matter.  It is amazing how much motivated students can learn and grow in three years. And remarkably, legal educators control the quality of the soil.  It brings to mind that seemingly trite Spiderman cliche about great power.

For those of us working in legal education, the next several years could be the best of times or the worst of times.  We get to decide.  Yesterday's article in the Times made it a little more likely that we actually have the difficult conversations needed to get to the other side. 

December 2, 2014 in Current events, Data on legal education, Innovations in legal education, New and Noteworthy, Structural change | Permalink | Comments (4)

Thursday, September 4, 2014

Artificial Intelligence and the Law

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.  

September 4, 2014 in Blog posts worth reading, Current events, Data on legal education, Innovations in law, New and Noteworthy, Structural change, Video interviews | Permalink | Comments (2)

Sunday, June 1, 2014

NewLaw, Innovation, and the Importance of Failure

FurlongJordan 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.

June 1, 2014 in Blog posts worth reading, Cross industry comparisons, Important research, Innovations in law, New and Noteworthy, Structural change | Permalink | Comments (1)

Tuesday, May 27, 2014

Another Datapoint for the Laptops Debate

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. 

May 27, 2014 in Blog posts worth reading, Cross industry comparisons, Data on legal education, Fun and Learning in the classroom, New and Noteworthy | Permalink | Comments (2)

Sunday, May 4, 2014

"Verbatim: What is a Photocopier?"

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. 

May 4, 2014 in Blog posts worth reading, Current events, New and Noteworthy | Permalink | Comments (0)

Sunday, March 30, 2014

Review of The Lawyer Bubble and Tomorrow's Lawyers

Harper_SusskindReaders 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

A Counterpoint to "The most robust legal market that ever existed in this country"

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.

  1. 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.  
  2. 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.

This chart can be broken down into three phases.

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.


Logo-kcuraOne 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.

LexRedux-Eventbrite-headerIn 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

Book-tomorrows-lawyersIn 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:

  • 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.

[PDF version]

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

Did the Market for Law Firm Associates Peak 25 Years Ago?

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)