Over the past couple of weeks, I was fortunate enough to attend two well-run conferences directed toward change in the legal profession. The first was put on by the Corporate Legal Operations Consortium (CLOC) and was held over four days in Las Vegas. Here’s a couple of articles I wrote on it. CLOC is directed toward legal operations professionals who believe better process in the legal industry will not only drive better results, it will be phenomenally more efficient.
The second was put on by Vanderbilt University in Nashville. An outgrowth of Vanderbilt Law School’s Program on Law and Innovation, the Summit on Law and Innovation (SoLI) SoLi, was the brainstorm of Larry Bridgesmith and Cat Moon was a little broader in scope but had the same premise: changes through technology, innovations and process can and will revolutionize the industry.
Both conferences began with the premise that change is accelerating and the legal landscape is being altered, finally. That big law and its waste and inefficiency are about to get its comeuppance. The conferences made the world seem simple: the tech innovators on one side and the staid traditional dinosaur law firm’s on the other, the latter headed for extinction.
From All Indications, Big Law Is Booming.
But right between these two conferences came the jarring news of the AmLaw 100 2018 financial survey which made what was simple and seemed so clear, much more complicated. This Survey, which was based on 2017 returns, looks at the financial health of the nation’s 100 largest law firms by gross revenue and other key metrics. And what did it show: Record fiscal years for the biggest of big law. Revenues and profits increasing to levels higher than those experainced even before that supposed profession changing event, the great recession. Added to this are multiple reports of multiple reports of a rock star signing bonuses bring offered to laterals. $9, $10, even $11 million. You don’t get these results if your fundamental business model is not working. Doesn’t sound much like a business model on the precipice of extinction. Instead, it looks and feels like business as usual.
But why? Why with the constant mantra that in-house counsel must “do more for less“ are the biggest of the big having banner years? Why when the promise of improved efficiencies and cost control brought about by improved process and technology are so many law firms making so much money?
One explanation could, of course, be that these law firms are better managed now than ever before. Indeed, this was referenced in a Bob Ambrogi podcast about the Survey results. Law firms are much more conscious of cost control. And they are hiring professional business people (gasp! Non-lawyers!) to run the financial side, contributing to a much more business-like decision-making model.
Another possible reason could be that the AmLaw 100 firms are going after and getting the most profitable work while dropping unprofitable lines. Yet another proffered reason: these firms are doing new and innovative things, and it’s finally paying off (although, as we will see in a moment, many in-house counsel pour cold water on this one).
The old, traditional model is still producing record profits just like it always did
But after thinking about it, the answer as to why there are record revenues and profits may, indeed, be more straightforward. Lawyers are smart, creative people. They have a proven business model and track record for making money. Why record profits: because the old traditional model is still producing record profits just like it always did (minus the blip of the Great Recession). And the corollary may also be true: change in the profession is occurring slowly if at all because there is little reason to change. As Richard Susskind put it: “it’s difficult to tell a room full of billionaires their business model is wrong.“ Particularly when it’s still raining money.
And no matter how much we can trumpet the need for and the inevitability of change in the marketplace, the truth is it’s not going to happen as long as the old way generates the wealth we are today seeing.
This is borne out by a recent survey conducted of corporate counsel by Thompson Hines in March of 2018. Only 4% (4%!) of in-house counsel reported seeing a lot of innovation from their law firms. Only 29% of these in-house counsel said their firms had made any significant changes to help alleviate pressures they faced. 70% of the counsel could not cite a single example of an innovative change made by their firms. Not one.
Why Aren’t Law Firms Changing More?
Why haven’t they changed? Why aren’t we seeing the predicted lower revenues and profits that all the innovation and technology promises?
Why haven’t law firms changed? Because in-house counsel simply haven’t demanded it.
Because law firms haven’t had to change. Because in-house counsel- despite protestations to the contrary- simply haven’t demanded it. My experience has been when clients demand a change, law firms, given the competitive environment, will bend over backward to change and satisfy the client wishes.
Let’s go back to the Thompson Hines survey. Almost half of the in-house counsel surveyed (45%) said they just hadn’t demanded any change, any innovation, from their law firms. (Given human nature, my guess is the real number may be higher). Indeed, coincidentally, 45% of the counsel surveyed never even get detailed plans, budgets or other useful financial information from their outside counsel.
Another recent survey of legal spending was conducted by Exterro Inc. One of the most surprising findings given all the talk about legal ops and technologically related savings: “The most commonly used technique for minimizing legal spend is negotiated rates/discounts while the most effective technique is e-billing enforcement of guidelines.” More evidence wholesale and foundational change in the legal business won’t happen until clients demand it-and many aren’t.
Why Aren’t GCs Demanding Change?
But why is this? General counsel are lawyers too. Like outside counsel, they are risk averse. Lawyers aren’t good at analyzing risk likelihood and severity. So when a matter comes in, the worst thing that can happen to an in house lawyer is for it to go bad, yield a terrible result, and then be questioned concerning whether the right firm was hired to do the work. It is better to blow through the budget than to get a terrible result, having picked a non-traditional provider.
General counsel are lawyers too. They are risk-averse. and poor at analyzing risk likelihood and severity
It’s the old IBM analogy. No one was ever criticized for buying IBM. Same is true in law. Hiring a new law firm, particularly one that is on the cutting edge of Innovation and who can do the work just as well and more officiant way, is an inherent risk. There is no track record. So, given a choice, a track record of mediocrity is better than no record at all. Being wrong is not a sound career move.
And hiring different firms or different types of providers takes time. Time to investigate, and to really learn whether they are legitimate or not. Most in-house counsel do not have the luxury of time.
We hear over and over again from in-house counsel that those invited to participate in beauty contests or RFPs are presumed qualified. Being qualified is “table stakes”; by virtue of the fact that you’re in the room, the in-house people believe you to be qualified. But getting on the “presumed to be qualified list” is also difficult and time-consuming. Leading to the fallback approach. When all the contestants have the same credentials and offer the same model, it’s unlikely that an innovative approach will take root.
And the same risk aversion concept applies to the life of a matter. Outside lawyer identifies a risk even though the likelihood of it happening is low. He describes it to in-house counsel who immediately understands the risk and envisions what would happen to him or her if the risk blossoms into reality. Outside lawyer then describes ways of analyzing and minimizing risk, all of which take time and money. The in-house lawyer doesn’t want to spend the money but also wants to make sure the worst doesn’t happen and/or they communicate what could happen in detail to the business people. So the work to minimize the chances of a de minimus risk from occurring is approved. Most business people would call that waste. Most lawyers-inside and out-would call that an abundance of caution.
Most business people would call that waste. Most lawyers-inside and out-would call that an abundance of caution.
I can use my own experience as an analogy. For most of my career, I was a mass tort lawyer, handling cases in all parts of the United States. I was fortunate but I lost many a beauty contest because I was not with a brand name firm in a major city. So, irrespective of the fact that I could do the work better and cheaper than say a New York firm, I lost out. And I am not unique in that respect: there are many many firms out there that can do all sorts of work cheaper and more efficient but there never given a chance.
And consider what’s happened to alternative legal service providers. Most can do all sorts of work faster, better and cheaper than law firms. But as this chart from Stephen Poor‘s presentation at CLOC shows, the growth of the use of providers has stagnated.
Who’s To Blame?
It’s fashionable I suppose to lay the blame for slow innovation in the legal profession at the feet of law firms and their business model. But most businesses-law firms included-utilize business models that are financially successful. Until that changes, it’s not particularly reasonable to expect law firms to commit economic suicide. What is reasonable, though, is for clients and in-house counsel to demand great efficiency, accountability, and innovation. Till they do, the needle just isn’t going to move much.