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The Paul Weiss Class of 2018: A Broader View of Big Law Partnership and Priorities

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Big Law Partnership and PrioritiesPaul Weiss issued a press release on December 7, 2018 announcing the promotion of a dozen  associates to partnership, effective January 1, 2019. Such announcements rarely receive attention beyond the new partners and their family, friends, and  professional colleagues. This was different. When Paul Weiss posted a photo on LinkedIn of its all-white crop of newly-minted partners– 11 men and one woman– it created a firestorm.

The New York Times published a front-page article “Elite Law Firm’s All-White Class Stirs Debate on Diversity,” chronicling the ensuing outcry. It reviewed big law’s history of racial and gender diversity, suggesting there are a legion of systemic reasons  accounting for it. Above the Law, a widely-read industry publication, offered a scathing rebuke of Paul Weiss,  asserting its 2018 partner class underscored the legal industry’s “rampant” diversity woes. It also excoriated the firm’s tone-deafness, arguing its press release demonstrated a “naked lack of awareness….a complete failure to recognize what’s happening.” The Paul Weiss 2018 partnership class’ composition also drew a strident, collective response from the corporate world. Approximately 170 officials at companies like Booz Allen, Lyft, and Heineken USA published an open letter calling on large firms like Paul Weiss to step up diversity efforts or run the risk of losing their business.

Brad Karp, the Paul Weiss chairman, issued a tepid apologia, pledging “We certainly can–and will do better.” He also implicitly defended the 2018 partner class by noting that it was 25% diverse– one woman, one Latino, and one LGBTQ partner. He went on to say that the firm had a history of putting diversity first and defended its record relative to other firms. The damage was done–the firm’s 2018 partner-elect class photo became the meme for big law’s struggles with diversity.

Diversity Is Not A Big Law Priority– Profit-Per-Partner Is

Law’s diversity problem is nothing new. Nor is it limited to race, gender, advancement, gender pay gap or other byproducts of a guild culture. That culture is rarely exposed in the blatant way the Paul Weiss photo captured, but it exists–especially to those that work at large firms as well as many who sought to.  Technology, new models–even client demands–have failed to produce meaningful changes in that culture. Why?

There are several reasons why big law culture remains largely intact, notwithstanding cosmetic efforts that suggest change. The explanations include: (1) firms have long operated as restricted clubs with self-selecting membership and partnership criteria; (2) self-regulation and protectionist rules designed to prevent competition from “non-lawyers have perpetuated an insular, homogeneous culture; (3) a closed market where, until recently, firms had a virtual monopoly of legal talent–the only expertise firms traditionally sold– and could dictate terms of engagement to clients; (4) decentralized management structures that fostered autonomous partner fiefdoms; (5) profit-per-partner (PPP)  is the law firm Holy Grail, and all other firm initiatives–including cultural reforms–take a back seat; (6) partners have had little impetus to alter things– law remains “berry, berry good” to them; (7) clients have yet to “punish” firms for their culture; they rationalize sticking with them for risk mitigation, relationship, cost of moving,and other reasons; and (8) innovation of any type is stultified by the traditional partnership model that offers no financial incentive for greying partners–usually the firm’s key stakeholders–to “leave money on the table,” reinvest, and take a long-term view. Law firm culture will not fundamentally change so long as PPP is robust and legal buyers continue to engage firms whose cultures are inimical to their own.

The Lateral Sweepstakes Says It All

The market frenzy for big-book laterals exposes the core of law firm culture: money. This is not to suggest that all big law lawyers “do it solely for the money,” but it’s hard to imagine, based upon personal experience, anecdotal evidence, and data that most remain at their firms “for the love of the game.” Big law is a culture that places PPP over all else– client satisfaction, a long-term view, re-investment in tools and resources–machine and human–required to remain competitive, diversity, collaborating with other providers (absent client mandates to do so), internal talent building, etc. Firms’ relentless pursuit of laterals and the erosion of firm loyalty and stability that it has created, provide the clearest image of today’s large firms. True “partnership” is largely a myth–so too with  esprit de corps, institutional loyalty, and succession planning. It’s a “take lots more money and run” approach to practice.

The data makes clear that PPP is the currency firms use to attract laterals, retain their own stars, and burnish their brands. In a Darwinian marketplace where partners bolt to new firms about as often as baseball players swap uniforms, a handful of elite, super-rich firms have lured marquis partners from rivals by offering astronomical compensation packages that have topped $10M per year. This practice was highlighted in a recent New York Times  article focused on the troika of high-profile defections from Cravath, a firm renowned for partner loyalty and immunity from poaching. Cravath has long been law’s answer to the New York Yankees (apologies to Red Sox fans), relying on its prestige, brand strength, and rich compensation to keep its partners from straying. The series of high-level Cravath defections caused a HUGE stir in big law and beyond–no firm was safe from big-dollar raids by other firms.

Paul Weiss snagged one of  Cravath’s star partners, Scott Barshay, and reportedly pays him a cool $10M per year–far more than he earned at Cravath. Asked to opine about the proliferation of laterals in big law, Paul Weiss chairman Brad Karp (he of the apologia cited above) commented that “the nature of big law” had changed. Mr. Karp was referring not only to the peripatetic, free-agents that today’s big law partners have become, but also to what he describes as “a gradual but steady erosion of both client and partner loyalty.” It’s curious that he does not connect the two. Why should clients–among other reasons–maintain loyalty to a firm when you can’t tell its partners without a scorecard? It’s revealing–if not ironic–that Mr. Karp sees big law change when it involves rainmakers and big dollars but it does not extend to rectifying diversity, gender pay gap, and other elements of  firm culture.

Firms are focused on laterals for short-term financial and brand reasons. While that’s certainly understandable, it helps explain why diversity, the gender pay gap, and meaningful, client-centric “innovation” are given more lip service than commitment. The partnership model is about partners. There are reasons why “partner de-equitization” is now common, more new partners are laterals than internal-promotes, and, notwithstanding the risk involved with bringing on laterals (half don’t stay for five years and many don’t live up to financial expectations) law firm focus is on the “big fish” talent like Scott Barshay. Rich, elite firms–Kirkland Ellis is a prime example–are melding Darwin with big-money free agency, making ongoing runs at elite partners from other firms. This is big law’s focus and the centerpiece of its culture. Certainly, there are firms striving to be more client-centric, innovative, and collaborative, but PPP is the zip code where big law lives. That is why law firm culture–at least among traditional partnership firms–is not changing materially or quickly.

Conclusion

Rewards are powerful drivers of human behavior and reflect an organization’s cultural priorities. The growing divergence between in-house teams and law firms is an example. Corporate legal departments have generally achieved greater diversity than law firms. That’s because they operate in a corporate environment where diversity is a cultural commitment deemed intrinsically and extrinsically valuable. In-house counsel are evaluated by and rewarded for efficiency, client-centricity, advancing enterprise objectives, and other result-driven metrics.

Law firms lag in diversity in part because their focus is elsewhere. Firm lawyers are rewarded for hours, origination, and profitability–all internal metrics that advance PPP but are often misaligned with client objectives. Firms tend to lack a unified culture because of their decentralized management, partner fiefdoms, turnover–that sometimes includes key partners–focus on laterals over home-grown talent,  and economic model. Lack of diversity is one element of the culture that young partners buy into. They will soon learn–if they don’t already know–that generating profitable business is the thread that binds and sometimes unravels the myth of law firm “partnership.”  If you live by PPP, you will likely die by it, too.

 

Originally published in Forbes.

Law’s Odd Couple: Will New Law Hires Transform Traditional Law Firms?

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new hiresBaker McKenzie, progenitor of the global law firm, created a buzz recently with a spate of “new law” hires. First, it tabbed David Cambria as its inaugural Global Head of Legal Operations, overseeing strategies for pricing, legal project management, and other “business of law” functions. Cambria, a corporate legal ops veteran, will, in the words of his new employer, bring a “voice of the client” to the firm and the clients it serves. Cambria is now joined by Casey Flaherty and Jae Um, well-known consultants and “new law” evangelists, to serve as director of legal project management and director of pricing strategy. As Roy Strom notes in a recent article, the  Baker hires, are “ indicative of a broader trend in the legal industry to build out professional service roles.”

Will an infusion of “new law” talent  in management and operational roles transform traditional partnership model law firms into client-centric providers that integrate the practice of law with the business of delivering legal services? As the British say, “it’s early days” but it’s certainly not too soon to identify internal obstacles that confront them.

Law Firm Odd Couple: Rainmakers and Business Professionals

Law firm management long consisted of a cadre of rainmaking partners–predominantly white and male–who ran firms as the restricted clubs that they were. Law firms sold one thing: practice expertise, and lawyers managed lawyers. That dynamic has changed in recent years, because legal practice is no longer synonymous with the delivery of legal services.

Technology, process, and the evolution of global, complex, fast-moving business have changed the legal buy/sell dynamic. Legal buyers, under pressure to “do more with less,” are demanding that practice be leveraged, streamlined, and supported by methods, operations, data, and standards, common to business. Most law firms have lagged in this transformation and have continued to focus on practice to the exclusion of enhanced delivery capability. Apart from a handful of elite firms that perform a disproportionate percentage of the highest-value “practice” matters, many firms are starting to pay for their stasis. The past several years have witnessed a steady migration of work–in volume and complexity– in-house and to law companies. This is context for why many large firms are hiring business, technological, and other highly-trained professionals to facilitate the integration of practice and delivery. The “new law” professionals serve both internal and external functions. They are tasked with cutting internal production costs and improving efficiency to sustain profit-per-partner (PPP) as well as working with clients to enhance provider/consumer alignment, performance, and satisfaction.

Several large firms have created “C-Suite” roles in response to elevated legal consumer expectations and a new buy/sell dynamic where lawyers no longer exclusively control legal buy and sell. A sampling of new roles includes: Chief Executive Officer (CEO), Chief Operating Officer (COO), Chief Marketing Officer (CMO), Chief Innovation Officer (CIO), Chief Knowledge Officer (CKO),  Chief Pricing Officer (CPO), and Chief Strategy Officer (CSO). While firms still lag in diversity representation and gender wage gap, the new hires suggest they are taking steps to integrate core practice expertise with enhanced delivery capability. Firms are hiring talent with new skillsets, backgrounds, and functions. The question is: how effective will  the “new law” talent be in what remains a traditional law firm culture?

The Partnership Model Is A Strong Headwind For Material Change

The C-Suite roles and titles, now common among large firms, suggest their transition to corporate culture. Even with an infusion of “business of law” talent and management responsibility, the traditional law firm partnership model remains intact and is a strong headwind to new law managers and operators. Law firms retain their traditional culture, structure, and economics. Each is a powerful change inhibitor, and collectively they make material  firm change a formidable undertaking.

There is no residual equity in firms upon retirement, so greying partners have virtually no long-term financial incentive to reinvest. Firm profits are whacked up at the end of each fiscal year, and that means that “the future is now” for most senior partners. The firm’s capital comes from lawyers because the self-regulated U.S. legal industry has repeatedly thwarted efforts to liberalize ownership, investment, and “corporatization” of law firms and to separate practice from the business of law. This sustains, among other things, firms’ “short-term” approach to meaningful investment, creating a “take the money and run” environment. It also militates against structural reform and succession. What kind of budget will the new law hires be given to invest in their firms’ long-term future? They must contend with these and other structural issues–not to mention whether they are given a clear mandate–to effect real change. That’s a tall order.

Traditional Firm Culture Is Lawyer-Centric, Individualistic, and Change-Averse

Culture does not change overnight; it is a difficult, protracted process that does not occur simply by creating new roles or pronouncements of “embracing innovation,” “partnering with clients,” and other buzzwords. So it is with law firms. During the past decade, firms have ceded their hegemony of legal talent and delivery of legal services. They have long sold one thing: legal expertise. Their culture was forged by lawyer-centrism, the myth of legal exceptionalism (a world of “lawyers and ‘non-lawyers’”),  a regulatory scheme designed to protect the legal guild from “outside” competition, a “scorched-earth,” labor intensive approach to delivery designed to produce the best legal work possible–no matter the time, cost, value, or importance to the client.

Legal consumers are challenging law firm culture by recasting law’s division of labor. Legal buyers–not firms– now determine what’s “legal” work, when lawyers are required, from what delivery model their value is optimized, and at what price. This is what firms–finally–are responding to with their new hires. Firms have focused on internal cost-cutting measures in recent years–reducing staff and incoming classes of newly-minted law grads, “de-equitizing” partners, hiring big-book laterals, decreasing the number of internal promotions to equity status, and reducing real estate costs. Firms have often turned to “non-lawyers” to take the lead on many of these efforts designed to sustain high profit-per-partner (PPP). These practices have had little impact upon practice, delivery, or clients; they were internal belt-synching and did not require the “non-lawyers” to “tell lawyers how to practice.” We are now entering a different phase.

The influx of new law professionals represents something different–firms getting serious about changing the delivery of their services. This is a more client-driven focus and one that potentially comes into conflict with the firm’s traditional practice modus operandi. For example, automation of tasks, sourcing work to other legal providers, and assigning project managers to take responsibility for delivering legal projects on time presents and at budget poses a threat to many lawyers–especially partners–and a challenge to new law managers and operations professionals. Even if there is senior-partner buy-in for change, that does not translate to  widespread rank-and-file acceptance and implementation.

A voice at the firm’s management table is another obstacle. Firms will differ as to the authority, status, compensation, and partner support given to the corps of business professionals. Many partners–especially rainmakers–have been given a wide berth by firms to keep them happy, and they often pose vocal opposition to altering the way they practice/deliver their services. Most firms are decentralized, as to rainmaker (read: firms are often fiefdoms), practice areas, geographies, and client relationships. To be effective, the new law hires must be given a broad mandate that applies across-the-board and can be enforced on a centralized basis.

A cultural divide exists between legal practice–the lawyer-centric, traditional legal mindset–and delivery of legal services. Practice has historically focused on “being a lawyer”–risk aversion, labor intensity, time and price insensitivity, legal–not holistic–solutions, and other lawyers. The business of law springs from different DNA. It is about business, process, efficiency, predictability, multidisciplinary solutions, speed, data, metrics, alignment with business, automation, scaling, “right-sourcing,” collaboration, transparency, customer satisfaction, and delivering measurable results for business challenges. In sum, practice sees things through the narrow prism of lawyers and legal solutions; the business of law–legal operations–sprung from law firms’ languid response to technological and process adoption to leverage practice expertise.

That cultural divide will present formidable challenges to business and technological professionals operating in the law firm environment. Even when functioning in the more corporatized in-house setting, many legal operations professionals complain about the blowback and marginalization they often encounter as well as their second-class status to practicing attorneys. It’s that much worse in law firms where origination, billing, collection, and the threat of defection typically confer authority, autonomy, and resistance to change. Where are things different? Law companies, spawned by the market void created by law firms and forged with different cultural values more aligned with business than law firms, are such places. That’s one reason why they are snapping up so much of the new law talent.

Conclusion

Are firms’ new law hires window dressing or recognition that they must change to remain competitive? This might just be the most important “bet the company” issue that firms will ever engage in.

 

Originally published in Forbes.

How Will Legal Providers Be Affected By The Next Recession?

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recessionHow will the legal industry be affected by the next recession? The thought came to mind several times recently as the stock market recorded its worst December since the Great Depression. Stocks have rebounded during the early weeks of 2019, but political turmoil at home; Brexit and its chaotic implications for the UK, Europe, and beyond; the slowing Chinese economy and the threat of a U.S.-China trade-war; and other destabilizing factors remain. So too does the question of what happens to legal providers when the other shoe drops again.

The Impact of 2008

 One way to predict the future is to examine the past. How was the legal industry affected by the events of 2008 and its aftermath? Ten years after the collapse of Lehman Brothers and the global financial crisis it precipitated, the contours of today’s legal landscape remain superficially similar to the pre- 2008 marketplace. Sure, Cravath’s stunning offer in 2009 to pay incoming $80,000 to incoming lawyers to defer their starting dates for a year shook up the industry for a while. But that and other post-crash fallout has been relegated to ancient history in a world fixed on the here-and-now. What could be so bad? The Citi Report, an industry bellwether, proclaimed that 2018 was “the best year for Big Law in a decade.”

The traditional law firm partnership model persists, and so too does the billable hour, rising rates, high profit-per-partner (PPP), escalating starting salaries, and hefty associate bonuses. Many in-house legal departments continue to operate as captive law firms, mimicking law firm culture.  All legal service providers that are not  traditional partnership model law firms are collectively lumped together and called “alternative legal service providers” (ALSP’s).

The self-regulated U.S. legal market, the world’s largest, continues to resist re-regulation (adopted in Australia, the UK, and other advanced economies). “Non-lawyer” investment, ownership, and control of law firms as well as multi-disciplinary practice is prohibited except in the District of Columbia. The access to justice crisis persists as does law’s distribution problem–most individuals and U.S. businesses cannot afford legal representation at current rates even as tens of thousands of lawyers are unemployed or underemployed.

On the surface, the legal industry has undergone modest change during a decade of unprecedented pan-industry disruption. A closer look reveals a different perspective– systemic changes are reshaping the legal industry, albeit more gradually than the “disruption” many pundits had predicted. Some key transformative currents include: (1) a shift in power from providers to consumers; (2) new providers; (3) new skillsets–law is not solely about legal expertise anymore; (4) technological adoption; (5) the practice of law and the business of delivering legal services; (6) infusion of capital (funding law companies, litigation finance, legal tech investment, etc.); (7) multi-disciplinary problem solving; (8) law firm hegemony over; (9) ascent of legal professionals/legal operations; (10) the rise of data and digital transformation; and (11) an emerging global legal community.

The last ten years have not produced “the end of lawyers,” but they have witnessed law’s transformation from guild to emerging global legal marketplace. Change has been propelled principally by legal consumers– not law firms– and by entrepreneurs, business and technology experts focused on improving the “delivery of legal services,” not legal experts/practitioners. The influx of expertise from other disciplines–as well as institutional capital– into the lawyer-centric ecosystem has produced new delivery models that are better aligned with consumers and that reward efficiency, predictability, cost-effectiveness, value and results. Law is no longer about scorched-earth labor intensity and lawyers decreeing that’s what necessary to produce the best legal product possible. It’s about problem solving at the speed of business.

New model providers have ignited a cultural transformation that embraces diversity; the potential of technology to help solve law’s wicked problems; the importance of collaboration and scale; the upside of automation; the predictive prophylactic, and analytical uses of data to substitute information for hunch; the power of capital; the importance of access; and the need to realign the interests of consumer with provider. During the past decade the legal industry has begun a transition from “lawyers know best” to “legal consumers engage providers that can best resolve their business challenges.”

The Industry After The Next Major Recession

How will the next major financial downturn affect the legal industry? It’s too speculative to pick individual winners and losers, but industry trends and evolving legal buy/sell dynamics make it easier to predict which categories and characteristics of providers will fare better or worse during the next economic downturn. Spoiler alert: providers that have embraced digital transformation will fare far better than those that have not.

 Law Firms

 The next recession will be a reckoning for most large law firms, especially those that have kicked the existential “who are we?” can down the road. That’s most firms. They continue to pursue a short-term strategy focused on preserving PPP at all costs and have yet to pay the price for it. The next financial downturn will be harsh on those firms that have failed to differentiate and to embrace a client-centric approach predicated on measurable results, efficiency, value, cost-effectiveness, proactivity, collaboration, and transparency. The trend lines are already pointing in this direction. Most firms are experiencing flat or declining demand for their services, stiffer competition–not only from other firms but also from in-house departments and a growing array of ALSP’s including the Big Four–and a “talent gap” fueled in part by promising young talent opting out of the partnership sweepstakes. Above The Law recently reported the mass “stealth layoff” by Cahill Gordon of “the overwhelming majority” of senior litigation associates in a particular class. The associates were told they were not partnership or counsel material, provided six months’ notice, and given a portion of their bonus. How’s that for a short-term strategy certain to deflate firm morale?

A cadre of elite, brand-differentiated firms have separated themselves financially because of their stranglehold on high-value, price-insensitive work for which they command premium fees. That is unlikely to change in the near-term. So too will firms that have differentiated, digitized, and integrated practice and delivery expertise prosper even during the next downturn. There will also be opportunity for law firms that create new organizational and economic models that are corporate, client-aligned, diverse, agile, collaborative, tech and process-enabled, entrepreneurial, multi-disciplinary, and industry-focused to thrive– even in a down market. Legal buyers have crossed the Rubicon and have overcome their reticence to engage new-model providers responsive to their needs. Law is a more open marketplace than ever.

Corporate Legal Departments

 In-house departments, like law firms, are by no means monolithic. They vary in size, corporate culture, portfolio, philosophy, performance metrics, and management. The financial crisis resulted in a decade of steady migration of law firm work in-house–not just in volume but also in complexity and significance. Will that pattern continue even when the next recession hits? In-house departments are already feeling unrelenting pressure from the C-Suite to “do more with less.” Rather than increase headcount, it’s more likely that many in-house departments will become more creative in slicing and dicing their portfolios and take an even harder look at “who does what?” For many, that would likely result in even less “fat middle” (everything except “bet the company” and commoditized) work sourced to firms, mandates to cap or reduce existing departmental headcount, and more work sourced to ALSP’s. There is already evidence to support this thesis;  UnitedLex “rebadged” several hundred professionals from DXC’s legal team and PwC took on approximately 600 of GE’s global tax professionals.

Other Providers

 The Big Four have stepped up their presence as major players in the global legal market, and this will no doubt continue in good and bad economic times. They enjoy many competitive advantages over traditional law firms: (1) strong, trusted global brands; (2) deep war chests; (3) digital transformation expertise; (4) strong C-Suite relationships; (5) multi-disciplinary talent; (6) global footprint; (7) strong commitment to ongoing professional training/re-training; and (8) client-centric, long-term approach to professional engagements. They are a safe harbor, especially in turbulent financial times.

Elite, law-centric legal providers like UnitedLex, Axiom, and Thomson Reuters are also well-positioned to expand their imprint, even during down markets. Why? Someone must do the work. They have the track record, brand recognition, global footprint, and financial backing to invest in client relationships and the resources–human and technological–required to sustain them and to deliver consistent, quantifiable results. These providers, like the Big Four, are anything but “alternative” and are positioned not only to survive but also to thrive in the next economic downturn and beyond.

Conclusion

The next major economic downturn is likely to produce the “disruption” that many in the legal industry have been expecting since 2008. Why has industry change been more drip than disruption? It has taken nearly a decade for legal consumers to wrest control of the industry from lawyers and to open up the long closed legal guild to other professionals, paraprofessionals, technology, and capital.

Corporate consumers call the shots now. They have effectively marginalized archaic, self-serving, and protectionist lawyer self-regulation. More importantly, they–not law firms–now determine value, what is and is not a “legal” matter, when lawyers are required, from what delivery model they are optimally deployed, and at what price. This has accelerated disaggregation and paved the way for providers with tech and process-enabled delivery models offering the expertise, resources, capital, diversity, customer-centricity, and competition to incumbent providers to compete favorably for market share in good times and especially in bad ones.

 

Originally published in Forbes.

What Does It Say When A Legal Blockchain eBook Has 1.7M Views?

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legal blockchain“Blockchain For Lawyers,” a recently-released eBook by Australian legal tech company Legaler, drew 1.7M views in two weeks. What does that staggering number say about blockchain, legal technology, and the legal industry? Clearly, blockchain is a hot legal topic, along with artificial intelligence (AI), and legal tech generally. It’s also a hot investment; last year a record $1B was pumped into legal tech. The global enthusiasm for tech is manifest in the throngs that attended the Legal Geek Conference, the Global Legal Hackathon, and a slew of events held by legal tech organizations around the world. Tech is the mortar of a global legal community that is transforming law from territorial profession to borderless industry.

But why, with so many blockchain and legal tech books and articles, is Legaler’s eBook capturing so many eyeballs?  One explanation is its plain-speak effort to demystify blockchain and analyze its current and future adaptations to law. The book also provides a framework for understanding how AI, software, the cloud, and other technological advances enable new delivery models to better respond to consumer demand for more transparent, efficient, scalable, cost-effective, and predictable outcomes.  There is a hunger–especially among those in the early and mid-stages of their careers– to understand these tools and new delivery models and, more importantly, how it will impact their careers.

The immense interest in new delivery models, legal tech, and transformation underscores that law today is as much about the new models, tools, and skillsets that drive it as it is about practice expertise. Law is no longer solely the province of lawyers; it is also comprised of non-licensed legal professionals and others involved in its delivery, funding, and innovation. The profession is being subsumed by a rapidly-evolving industry. Lawyers once controlled the profession and the industry. Clients control the industry now, and that is impacting how the profession operates, the models from which its expertise is most effectively delivered, the skillsets and resources required to augment it, and changing economics.

Legal practice and delivery are each changing. New practice areas like cryptocurrency, cybersecurity, and Internet law are emerging as law struggles to keep pace with the speed of business change in the digital age. Concurrently, several staples of traditional practice–research, document review, etc.– are becoming automated and/or no longer performed by law firm associates. There is more “turnover” of practice tasks, more reliance on machines and non-licensed attorneys to mine data and provide domain expertise used by lawyers, and more collaboration than ever before. The emergence of new industries demands that lawyers not only provide legal expertise in support of new areas but also that they possess intellectual agility to master them quickly. Many practice areas law students will encounter have yet to be created. That means that all lawyers will be required to be more agile than their predecessors and engage in ongoing training.

Legal delivery, once the “back office” of practice, is now an integral part of the legal delivery process. Technology, process, the inexorable shift to multidisciplinary, collaborative delivery required to solve complex business challenges are now as critical as practice expertise to deliver effective, efficient, predictable, cost-effective, and data-based solutions to complex business challenges. The integration of practice and delivery has become the new paradigm for legal services and is seldom derived from a sole source. Law has become a team game.

It is against this backdrop–and perhaps because of it–that many in the legal industry have a growing anxiety about their future. Law, like so many segments of the society it serves, is changing rapidly and requires ongoing (re)training and dedication to lifelong learning. Today’s fast-paced, dynamic, fluid legal industry bears little resemblance to the one most law schools are preparing graduates for. This is another reason why cogent explanations of forces propelling that change–like Legaler’s eBook–are appealing and helpful.

“Blockchain For Lawyers”

Stevie Ghiassi, Legaler’s CEO and “Blockchain For Lawyers” author, endeavors to “offer an easy-to-digest, holistic take on how blockchain applies to the legal industry. “ Ghiassi’s book dispenses with unnecessary jargon, explains the basics of blockchain technology, and examines–in his words– “the profound innovation of creating digital trust in a digital age, and how that impacts every aspects of our lives.”

Ghiassi contends that blockchain represents a new evolutionary stage of trust, arguably the most central concept for organizing human organization. Societies initially relied on tribalism, a personalized, localized trust. As society scaled, institutional trust in governments, corporations, came to replace personal trust as society’s glue. Blockchain technology represents a new transparent, ‘distributed’ trust phase facilitated by decentralized networks like Bitcoin and Ethereum.

Why should the legal industry be paying attention? Ghiassi argues the degree to which people trust each other and how they manage those trusted relationships is often intermediated by lawyers. With such a profound shift in the nature of trust, the role of lawyers is likely to change. The confluence of blockchain, cryptocurrency, smart contracts, and zero knowledge proofs facilitates new businesses processes that remove intermediaries and reduce transactions costs, making legal services more accessible. This disintermediation process is already underway in law and is accelerating rapidly with the concurrent adoption of AI, platforms, metrics, and other tools and resources enabling new providers to build client-centric delivery models. They are transforming legal delivery from a labor-intensive, lawyer-centric model to a tech and process-enabled, customer centric one.

Ghiassi is a poster child for the contemporary legal professional. He does not hold a law license and facetiously notes in his Linkedin profile that ““All legal knowledge acquired from Suits seasons 1 to 7.” He does have a keen grasp of the legal industry and a clear-eyed objective for his technological prowess: “ Pursuing a better world through technology to advance the delivery of legal services and expand access to justice by leveraging distributed ledger technologies like blockchain and decentralization.” Perhaps it is because Ghiassi is not a lawyer–yet understands the profession and its new tools-of-the-trade–that he is able to explain and contextualize blockchain so effectively. Ghiassi views legal delivery from an outcome perspective–what it should accomplish–rather than a practice one–what is has historically meant to be a lawyer.

Conclusion

This is an exciting time to be in the legal industry. It was long a guild; now it is an emerging global community. It was homogeneous, and it is slowly morphing into a more diverse culture. It was parochial by design and now it is becoming borderless–at least with respect to the new business models, tools, and resources available to provide legal services. It was lawyer-centric, and it is increasingly becoming multi-disciplinary. Law was once exclusively about lawyers; now it is about legal professionals and other disciplines, technology, and new providers expanding access to and improving delivery of  legal services.

Many in the profession rue these changes, and some remain steadfast in opposing them. The socio-economic forces driving change across multiple industries are far too powerful for the remnants of the legal guild to repel. Law should look more closely at other industries for ideas that can be leveraged. A good place to start is customer-centric companies. The profession will not be compromised by this process; its ability to better serve legal buyers and society will be enhanced.

Stevie Ghiassi’s  thoughtful book that encourages lawyers to embrace technology as a tool to better serve legal consumers and society is deserving of even more views. Hopefully, it will encourage others to do the same.

 

Originally published in Forbes.

A Banner Year For Law Firms? A Different Take On The 2019 Citi Hildebrandt Report

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The 2019 Citi Hildebrandt ReportThe 2019 Citi Hildebrandt Client Advisory, (Citi Report) an annual survey of law firm fiscal performance, drew considerable industry attention following its December release. The opening sentence of the Executive Summary is the likely reason: “The US law firm industry is enjoying its strongest growth in almost a decade.” The Report ticked off a slew of positive indices: an average 6.3% revenue growth; 4.3% billing rate increase during the first nine-months of 2018; a 3.3% increase in demand among the AmLaw 50 firms; and gains among both large and small firms.

Uneven Results And Ominous Trends

 The Citi Report’s headline-grabbing “strongest growth in a decade” came as welcome news for skittish firms and a surprise to pundits opining when firms’ other white shoe will drop. But as Gilbert and Sullivan cautioned, “Things are seldom what they seem.” A closer look at the Citi numbers reveals that it was a banner year for some firms but by no means all. This is consistent with data from other sources indicating a widening fiscal separation between a cadre of “elite” firms and the rest of the pack. While the 6.3% revenue growth of Citi’s surveyed firms is impressive, it is offset by the 5.9% increase in firm costs. That yields a miniscule 0.4% increase in profits. Longer collection cycles, declining realization, and “dispersion”– the near even split between firms that see demand increase and firms that see demand decline year-to-year– tell a different story than the Report’s bullish headline.

The Citi Report also revealed several ominous trends–the challenge of hiring lawyers/legal professionals with new skillsets–“not just legal expertise;” talented associates opting out of the partnership gauntlet; an aging partnership whose retirement will create a “capital gap;” succession issues; a dearth of internally-promoted partners and reliance on risky lateral bets to spike profit-per-partner (PPP). These are all indications that most firms are focused on short-term performance, not investment in long-term sustainability and transformation to a client-centric business model.

Equity partner headcount declined by 0.3%, a continuation of a seven-year trend where equity partner numbers have remained flat but leverage (non-equity billers) has increased. That’s a good way to prop up PPP but not a winning long-term strategy. Technology is replacing brute force labor for many “legal” functions, and law firms are no longer the default provider for all “legal” work. BigLaw is confronting intensifying competition–not only from other firms, including smaller ones,  but also from in-house departments, the Big Four, and other law companies.

Legal providers in today’s market must satisfy customer needs and deliver scalable, efficient, cost-effective, and measurable solutions that yield profit. This contrasts with the traditional law firm partnership model where profit emanated from a pyramidal structure whose foundation was billable hours and high rates– not outcome and value. Most law firms have yet to make the transition. Legal delivery is no longer about high-priced firm lawyers billing countless hours to solve legal challenges. It’s about integrating necessary expertise and leveraging it with appropriate resources–technological and “right-sourced” human ones–to solve complex business challenges efficiently, cost-effectively, holistically, and measurably. This is legal delivery in the digital age.

Citi reported that equity partner turnover– lateral hires, defections, and “de-equitization”–was the highest in five years. This coincided with more laterals achieving equity status than internal promotions, another blow to firm morale and a further impediment to succession planning. Citi projects this pattern will continue; “we believe that is unlikely that there will be an imminent return to law firms clearly favoring promotions.”

All this confirms that most firms are pursuing a “future is now” approach designed to prop up short-term PPP. That strategy typically ignores–or pays lip-service to–the increasingly urgent challenge confronting all firms: how to narrow the growing divide between what clients want and what firms currently sell. That requires equity partners–a majority of whom are nearing retirement–to reinvest in the firm’s future and “leave money on the table.” Absent a residual financial incentive to do so, that is a tough ask.

This begs the question: where will  firms’ next generation of leadership and talent come from and will it have the new skillsets, diversity, and resources–structural, financial, human, technological, process, cultural–to be competitive in a rapidly evolving global marketplace?  Traditional partnership firms must commit to a client-centric model, and that’s not just a catch-phrase. It is a difficult, painful, and staged process that requires a commitment to structural, economic, and cultural change. Diversity is an integral element of firms’ cultural change. They must commit to diversity in hiring, training, retention, leadership, client stewardship, and other key management and operational components. The firm must also promote a collaborative ethos that advances client interests, not the firm’s internal pecking order and origination credit.

The Citi data reveals that firms will soon experience a changing of the guard. If present demographics hold, Citi projects that approximately 61% of partners will be at or approaching retirement in eight years. That will create an acute “capital gap” and foment internal friction over who will pick up the financial slack and whether it’s a good investment. It will also have a chilling effect on young talent and recruitment.

Firms are already confronting a talent gap that has two main components: (1) a dearth of young candidates with project management, data analytics, business and other skills required to augment “knowledge of the law;” and (2) Citi’s finding that “a significant proportion of associates do not want to become equity partners.” The promise of partnership was long the carrot firms used to attract and retain talent.  The combination of fewer internal promotions to partnership and a disinclination of many younger lawyers to stay-the-course will cause firms to scramble–and pay a premium for– capable talent. It’s no longer a secret that the traditional firm partnership model is showing stress cracks, and talented legal professionals have alternatives to law firms.

What About The Competition?

 Law firms are no longer competing solely with each other for clients and talent. The well-documented migration of work in-house and to so-called “alternative legal service providers” (ALSP’s)  is another ominous sign for firms, particularly those with undifferentiated brands (read: most). Many corporate departments already operate differently than firms–they have corporate models; dual roles–corporate guardians and business partners; different performance metrics–output, not input; closer alignment with the business; more integration with others in the legal supply chain (e.g. their internal legal operations teams and/or outside service providers, the Big Four, law companies, niche providers); and financial alignment with the consumer (stock and other corporate remuneration). In-house departments tend to be more collaborative than firms because sourcing work to the right provider is a win, not a (short-term) loss of revenue. The same can be said for leading ALSP’s whose genesis and growth are tied to law firms’ languid response to changing legal consumer demands, new delivery models and tools, and the growing complexity and speed of business. Firms are largely making internal changes that impact their short-term bottom line. The competition is focused on what clients need and how they can most efficiently, cost-effectively, measurably, and impactfully deliver it.

Clients Are Calling The Shots Now

Law firms pay lip service to “client-centricity” and “innovation,” but the Citi Report’s findings suggest most are more focused on short-term preservation of PPP and less on systemic changes required to provide legal consumers with what they need. Law firms long dictated the terms of engagement to clients. That’s changed. Legal delivery is no longer synonymous with legal expertise, most firms’ stock-in-trade. It is about solving multi-dimensional, business challenges that require legal, business, process, technological, data-driven, collaborative solutions at the speed of business. Firms remain “law-centric” in a digital age when tech and process-enabled, client-centric legal business providers that use data, leverage expertise, and right-source tasks are transforming legal delivery. No matter the name one attaches to such models, they are–and will continue to–garner increased market share from static traditional partnership firms.

Conclusion

The Citi Report affirms that some firms continue to prosper, even as many are experiencing unaccustomed “dispersion.” The trend lines suggest that firms’ short-term approach will continue to erode internal stability, impede structural and economic reform, and discourage investment in resources required to better align with and satisfy legal buyers. That’s the real headline.

 

Originally published in Forbes. 

What Are Law Schools Training Students For?

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An email conversation between Mark A. Cohen, Thought Leader | CEO Legal Mosaic and Joek Peters CEO LegalBusinessWorld around Marks’ article ‘What Are Law Schools Training Students
For?’ (Forbes)

The legal profession and the trillion-dollar global industry are undergoing a transformation. The seminal elements of legal practice–differentiated expertise, experience, skills, and judgment–remain largely unchanged. The delivery of legal services is a different story altogether. New business models, tools, processes, and resources are reconfiguring the industry, providing legal consumers with improved access and elevated customer satisfaction from new delivery sources. Law is entering the age of the consumer and bidding adieu to the guild that enshrined lawyers and the myth of legal exceptionalism. That’s good news for prospective and existing legal consumers.

The news is challenging for law schools, most of whom seem impervious to marketplace changes that are reshaping what it means to be a lawyer and how and for whom they will work. The National Advisory Committee on Institutional Quality and Integrity (NACIQI), a branch of the Department of Education, rebuked the American Bar Association (ABA) in 2016 for its lax law school oversight and poor “student outcomes.” Paul LeBlanc, a NACIQI member, concluded that the ABA was “out of touch with the profession.”

Joek: ‘This 2016 outcome, the ABA being out of touch with the profession must have triggered them to act; what has happened since this disturbing outcome was presented, and do you think law schools are more ‘in-tune’ with the current market developments?

Mark: Law schools have made some strides during the past few years– experiential learning, legal technology, entrepreneurship, legal innovation, and project management courses, are becoming standard fare. A far bigger–and more important step would be for the legal Academy to forge alignment with the marketplace. That would be a “win-win-win” for students, law schools, and legal providers/consumers. Students would be exposed to the “real world” and the skills, opportunities, and direction it is taking. The Academy would acquire context, use-cases, and an understanding of consumer challenges and needs–a strong foundation from which to remodel legal education and training, address the “skills gap,” as well as to improve “student outcomes.” Legal providers/ consumers would benefit from a talent pool better prepared to provide solutions to the warp-speed pace and complex challenges of business.

Joek: ‘I totally agree. For the last 2 years I’m a guest speaker on innovation and change at the Honors College of Law at Leiden Law School and I’ve noticed that they are preparing students to work in a more dynamic marketplace in which change in customers needs, IT developments and structure are more apparent. But I also notice sort of a ‘false urgency’, meaning that a lot of Law Schools talk about the importance of change, but in the end focus on the primacy of traditional educational. In terms of management, strategy, organization etc., and to get rid of this ‘false urgency’, what needs to be done, and do you think that the business of law and legal delivery needs to be an inseparable part of the standard law school curriculum?

Mark: Yes, I feel strongly that students be exposed to the marketplace as it is today, not as it was even a decade ago. That means that legal practice and delivery should be taught in an integrated fashion. Simply “knowing the law” is insufficient for lawyers today. The “false urgency” you mention is a problem because there is an urgent need for students to be trained differently than before. That’s because legal buyers have different demands and expectations. “Change” is meaningless unless it is contextualized–why has it come about, what’s it’s impact, and what is required to adapt to it? That’s what law faculties should focus on to provide context. The problem–especially in the U.S.–is that few full-time law school faculty have practice experience much less understand industry changes that have occurred during the past decade.

What Does It Mean To “Think like A Lawyer” Now?

Law schools have long focused on training students how to “think like a lawyer.” Their curricula were designed to: (1) hone critical thinking; (2) teach doctrinal law using the Socratic method; (3) provide “legal” writing techniques and fluency in the “language of law”; (4) advance oral advocacy and presentation skills; (4) encourage risk-aversion and mistake avoidance; (5) refine issue identification and “what ifs;” and (6) teach legal ethics.

Law schools still teach this way even as the marketplace has changed markedly, particu- larly during the past decade. Legal delivery is now a three-legged stool supported by legal, business, and technical expertise. Law is no longer solely about lawyers; law firms are not the default provider of legal services; legal practice is no longer synonymous with legal delivery; the legal buy/sell balance of power has shifted from lawyers to legal buyers; lawyers do not control both sides of legal buy/ sell; and the function and role of most lawyers is changing as digital transformation has made legal consumers–not lawyers–the arbiters of value. These changes are affecting what it means to “think like a lawyer” and, more im- portantly, what skills “legal” skills are required in today’s marketplace.

Legal knowledge was long the sole requisite for a legal career; now it is a baseline. “Thinking like a lawyer” today means focusing on client objectives, thinking holistically-not simply “like a lawyer,” understanding business, melding legal knowledge with process/project management skills, and having a working knowledge of how technology and data impact the delivery of legal services. Lawyers no longer function in a lawyer-centric environment–now, they routinely collaborate with other legal professionals, paraprofessionals, and machines. Thinking like a lawyer means understanding the client’s business–not simply its “legal” risks. It also means collaborating with others in the legal supply chain, ensuring that the “right” resources are deployed to drive client value, working efficiently, capturing intellectual capital, using data, and advancing client objectives.

Legal performance is shifting from input–hours and origination– to output– outcomes and results that drive client value. Lawyers must be attuned to the complexity and speed of business. They must render counsel that considers not only legal risk but also other factors such as brand reputation, regulatory, financial, etc. They must provide multidimensional, holistic, timely, and actionable advice. This is what the marketplace construes as “thinking like a lawyer.”

Joek: The underlying competences in ‘Thinking like a lawyer’ changed and I agree that all legal students, before taking on their professional career, need to be aware of new market dynamics and that a successful career in the legal industry means more than being a specialist in a certain law practice. But, how about training students to ‘Think like their client’ not only from a legal business perspective but actually train them to be able to understand the challenges and need of their clients and be more business savvy, so their lock-in is not only on legal matters, but actually knowing the drivers of a clients success and growth?

Mark: “Thinking like a client”–at least knowing the client’s objectives, risk tolerance, value assessment, and business has always been critical. The problem is that most lawyers have little direct client contact and, so, neither ask those questions nor see things from a holistic perspective. Law schools have traditionally taught students to “think like a lawyer” and that’s fine so far as it goes. But thinking like a lawyer involves not only legal expertise and competency but also–as your question implies–much more. I agree with you; lawyers must be business savvy, understand how technology impacts legal delivery, how the legal supply chain works, project management, and the basics of data analytics. They must understand client challenges from more than the narrow “legal” perspective, because clients today want answers to complex, multidisciplinary client challenges, not legal briefs.

What Should Law Schools Train Students For?

Most law schools continue to train students for traditional practice careers, even as more “legal” work formerly performed exclusively by law firms has been disaggregated and is now increasingly sourced in-house, to law companies, and to “legal” service providers from other disciplines–notably, the Big Four. “Practice” careers are shrinking, and that means that law students and those in the early and mid-stages of their careers must learn new skills to qualify for the jobs that will replace them.

Deloitte projects that 39% of all legal jobs will be automated within a decade. Many of those positions are currently filled by law firm associates who, through labor-intensity (read: high billable hours) and premium rates sustain the traditional partnership model. That model is changing; law firms are hiring fewer newly-minted lawyers and only a small fraction of BigLaw associates make partner. Legal buyers are balking at paying premium rates for non-differentiated “legal” tasks. For many law grads, “gigs” are replacing full-time jobs, and the average lawyer can expect double-digit job changes during her/his career. “Knowing the law” is now a baseline that must be augmented by new skills that are seldom taught by law schools–data analytics, business basics, project management, risk management, and “people skills” to cite a few.

Why are most law schools slow to revamp curricula–even as many have spent tens of millions on new buildings that drive no value to students? And why is the Academy detached from other stakeholders in the legal ecosystem? There are many explanations for the disconnect between the legal Academy’s training and the marketplace’s needs: the ABA’s protectionism of the profession (read: dues-its dues-paying lawyer members); faculty indifference; focus on the profession, not its interplay with the industry; unwillingness to embrace pedagogical change; a narrow, anachronistic, self-serving interpretation of “scholarship,” ranking fixation, a monolithic, undifferentiated approach to legal education/training, and an absence of meaningful performance metrics and accountability. Law schools have begun to pay the price for stasis–declining en- rollment, fiscal pressure, migration of talent to other professions/business, and a torrent of negative press. What’s to be done?

Law Schools Should Focus on Consumer Needs and The Skills Required to Satisfy Them
Businesses have different cultures, hiring criteria, target markets, and performance metrics–why not law schools? Most academics would respond, “The goal of business is profit–that’s very different than an educational institution.” Perhaps, but in today’s world, profit is derived from customer satisfaction–a positive experience, a satisfying outcome, and value. Most law schools are receiving failing grades when measured by these criteria. They should, as Mary Juetten suggests in a recent article in the ABA Journal, focus on outcomes. For Ms. Juetten, that includes adding metrics, going beyond substantive law, more practical experience (a/k/a experiential learning), doubling down on dispute resolution mechanisms, and finding solutions for the access to justice crisis by aligning tech products to material marketplace needs (use-case). Let’s hope the ABA takes note of her recommendations.

There is no one-size fits all answer to the training issue, and that’s part of the problem. Law schools have largely undifferentiated curricula and train as if grads from all law schools are preparing for similar careers. That flies in the face of past, present, and future reality. A small band of elite, brand-differentiated law schools (“T-14”–perhaps 20) continue to prepare the bulk of graduates for “practice” careers at similarly brand differentiated law firms, in-house legal departments, law companies, as well as high-level Government, academic, and judicial careers. For the other 170 or so U.S. law schools, it’s a different story– but by no means a bleak one. There is enor- mous opportunity to train students to better serve law’s “retail” segment. Tens of millions of new legal consumers would enter the market if there were more new, efficient delivery models that better leverage lawyer time utilizing technology, process, data, metrics, and a client-centric business structure. So too are there opportunities for grads of non-elite schools trained in data analytics, project management, knowledge management, and a plethora of other “business of law” positions–many of which have yet to be created.

All law schools should provide grads with: a command of doctrinal law “basics” including legal ethics; critical thinking; people and collaboration skills; business, tech, and data analytics basics; marketplace awareness; a learning-for-life mentality; and an understanding that law is a profession and a business. Law schools must also train students to be client/ customer centric. This is far more important than the “lawyer-centric” approach of the past. Students must graduate with a grasp of what legal consumers expect of lawyers; what skills are necessary to satisfy those expectations; and what additional/ongoing training will be necessary to drive client value? A law school diploma is no longer the end of one’s formal education–it is a baseline in a lifelong process. This presents a challenge and opportunity for law schools to be the principal source of that ongoing training.

Conclusion

Law schools must become better aligned with the marketplace. It’s consumers–not lawyers- – that now decide how and when lawyers are deployed. This is a path previously traveled by physicians, accountants, and other professions. Service professions–like businesses– must serve the needs of consumers. Those needs are not static. That’s why law schools cannot remain static and must adapt more fluid curricula to meet the needs of legal consumers, not their own.

Joek: I think a fairly large group of professionals will agree with your recommendation(s). However, isn’t part of the problem that it is easy to say that curricula must be more fluid, and that we can learn from other professions to change the curricula, but because of a lack of insights in what legal education should look like and/or how to migrate to such an educational system is the actual challenge… and if you were asked to change the law school curricula, what would you propose or do, the migrate the current Law School curricula to the ‘new’ updated curricula?

Mark: I’ll answer your question by assuming I had license to build the model from scratch, unencumbered by legacy faculty, overhead, culture, and regulatory constraints. I would start from the premise of educating/training students with the tools necessary to meet legal consumer demands. It’s buyers that are now dictating how, when, with whom, and at what price point lawyers–and other legal professionals–are engaged. Consumers, not lawyers, now determine what “legal” tasks are and when lawyers are required. That’s a different marketplace than traditional legal curricula were designed to step into. Also, fewer lawyers will have traditional “practice” careers now and more will have hybrid practice/delivery jobs and gigs.

All lawyers should have a baseline knowledge of traditional core doctrinal courses–like physicians–but beyond that training should be specialized–again, like doctors. Why should all law schools train students as if they were engaging in identical jobs/gigs? A use- case approach would be helpful. “Soft skills”– a misnomer because they are core skills– should also be emphasized. That includes collaboration, client management, cultural awareness, and other areas related to emotional intelligence. “Residency” periods, externships, and practical experience would also be required. So too would one or more semesters at a foreign law school. Cost would be reduced by a combination traditional and “flipped” classrooms. That’s a start….

 

Originally published in LegalBusinessWorld.

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