Forget a hero, the legal industry needs a game changer. We’re continuing to operate like it’s still 1999, and, let’s face it, the world has moved on, yet our business model is still, fundamentally, unchanged.
In my 20 years as a legal marketing executive, as well as a very vocal member of the law firm and business of law ecosystems, I have watched as the different disruptors have risen, only to see the skeptical lawyer mindset argue away its value and potential impact. All the while, market share is slipping away, for both the lawyers who represent “PeopleLaw” and the corporate firms who represent “Organizational Clients” (AKA “consumer lawyers” and “AmLaw 100” firms).
Yesterday, in the LME group, peer and colleague Dave Bruns shared Bill Henderson‘s “Legal Market Landscape Report,” which was commissioned by the State Bar of California. It is an important read. So important that I will share here with you a highlighted copy with my first-round of notes.
From just sharing the report on Twitter, the nay-saying has begun:
I’m flummoxed that non-lawyer ownership continues to be presented as a solution to virtually every problem facing the legal profession despite the modest results in the UK and Australia. More here on @wihender report: https://t.co/Hm7ezOpnBm https://t.co/kzxNeG223B
— Milan Markovic (@ProfMarkovic) July 24, 2018
As someone actively involved in #Auslaw, I wouldn’t take the relatively low take-up of corporate structure/IPOs as a sign of its failing but rather how entrenched and complex the current partnership model is and the very complex difficulties of trying to unwind from this position
— Richard W Smith (@RWS_01) July 24, 2018
We’re not comparing form operations to pre-recession. But to how law firms function as a business today and how that business is going to flourish in 2020 and beyond considering the disruptions. It is about delivering services, but, more importantly, how the business operates.
— Heather Morse (@heather_morse) July 24, 2018
There is a lot more in the report that speaks to the decline of the PeopleLaw sector (CPI data, Clio, Chicago Lawyers, NCSC Landscape report). 2007 to 2012 was based on data availability from the U.S. Census Bureau. The 2017 data will be out over the new 1-3 years.
— Bill Henderson (@wihender) July 24, 2018
There are others who wonder if it will really change anything. They urge caution around the laws of unintended consequences. But, really, doing nothing is not a strategy.
THE WORLD HAS CHANGED.
My initial thoughts
My head is racing and I could write a series of posts on what I have gleaned. But, I’ll focus on what I know best: the corporate law firm, and the mid-sized firm in particular.
The report leads up to the recommendation that Rule 5.4, which impacts fee splitting and “non-lawyer” ownership in law firms, be revised. From page 27 of the report:
The legal profession is at an inflection point that requires action by regulators. Solving the problem of lagging legal productivity requires lawyers to closely collaborate with allied professionals from other disciplines, such as technology, process design, data analytics, accounting, marketing and finance. By modifying the ethics rules to facilitate this close
collaboration, the legal profession will accelerate the development of one-to-many productized legal solutions that will drive down overall costs; improve access for the poor, working and middle class; improve the predictability and transparency of legal services; aid the growth of new businesses; and elevate the stature and reputation of the legal profession as one serving the broader needs of society.
Some U.S. jurisdiction needs to go first. Based on historical precedent, the most likely jurisdiction is California.
Along this topic, Jordan Furlong suggests we rephrase the whole thing:
Suggestion: Replace the phrase “rules that ban non-lawyer ownership of law firms” with “rules that mandate lawyer-only ownership of law firms.” The double negative of “ban non-lawyer” casts the whole issue in the language of disallowance, prohibition, and exclusion.
— Jordan Furlong (@jordan_law21) July 25, 2018
I love this, but getting back to the topic at hand …
How could one simple change–allowing an executive without a law degree (no where does it say you need to be a licensed and practicing attorney, by the way)–to share fees or be a co-owner (or partner) change the world in which we work?
… Rule 5.4’s ban on nonlawyer ownership remains a major roadblock to solving, or mitigating, the lagging legal productivity problem (i.e., cost disease). This is because the efficiency gains of lawyer specialization, which gave rise to law firms, have been fully exhausted.
I would argue that Rule 5.4 also undermines the legal business executive amongst the lawyers in the room. Too often, law firms recruit and hire a c-suite of executives, and promptly ignore their sound advice because they are not lawyers or partners in the firm.
Often times the best and brightest will not entertain joining a law firm because they are not provided the co-equal status they command outside our industry.
New technologies are not implemented (too expensive) or fully deployed (“Don’t they understand that I bill by the hour? This will make me more efficient.” — an actual sentiment of a PARTNER at a prior firm after a product demo) due to partner push-back.
This is not the business model followed by our fellow service providers in accounting, financial services, and definitely not the case amongst our client base.
PeopleLaw v. Organizational Clients v. Everyone Else
Read the report. Seriously. I don’t know if I can have a conversation about the business of law with anyone who hasn’t read and digested it.
What I have seen from before and after the Great Recession is that corporate counsel continue to pull more work in-house, creating the “Type 6” structure we see in the charts below.
Mid-sized firms have pulled off all the work that they can from Big Law based on pricing.
Big Law is doing the work only they can do … for now.
Technology is distrupting the work sent to law firms every day, and the lawyers really are not aware of how much of an impact this is having on our industry.
In short, you know your marketplace. How’s it going?
From the report, I really like these two charts:
What’s so important here is that you need to know where you fall in these two categories. Not all clients are equal. Not all law firms are equal. One size does not fit all … and strategy is not a four-letter word.
A discussion and focus missing in the report is the middle. The report addresses the individual marketplace (Type 1) and the large corporate clients (Type 6), but barely discussed are Types 3-5. This is where the AmLaw 200 and mid-sized firms compete. What we are also starting to see is the AmLaw 20 pull away from the pack, so the majority of the AmLaw 100 are now competing against the next tiered firms.
The AmLaw 20 (and the rest of the 50 are starting to catch up) have made the adjustments necessary to succeed. But have the rest of us?
Your privately held, family-owned, start-ups need legal services as well. Are our rates in line with their needs and budgets? How can we partner with the Alternative Legal Service Providers (ALSPs) to create a better business model for them, and for us? Is our own house in order?
If the goal of the report, and the suggested changes to the legal rules and ethics, is to take into account the service to the marketplace, I would hope that this middle market is also considered as serving this sector is what drives the American economy, right?
What About the Law Schools?
Law schools have to adjust. We are graduating too many lawyers who will never, ever, ever pay off those loans. They are entering a very complicated business market with ZERO understanding of the economic drivers.
EVERY student entering law school today needs to educate him and herself as to the current status of the legal market, and where they fit into the legal industry ecosystem. Law schools are not doing the students justicepreparing them for what they are about to face. Too many attend and graduate law schools that will never open the doors to the type of business they need to pay off their loans.
The US Census Economic Census data is just now starting to be collected, but the initial data won’t be available for release until September 2019, with the full data not available until December 2021. It really cannot come fast enough.
I’m excited. My comfort with conflict is off the charts, and I like blowing shit up to make things happen.
But really, what we need is great leadership to guide us through these times. The best thing that those of us within this legal ecosystem can do is to continue to educate those around us. We need to have these conversations without shutting down the conversation. We need to be open-minded. We need to innovate.
I’m not advocating throwing the baby out with the bathwater, but we also cannot avoid these business of law issues any longer.