- Law is not an Island
Much has been written about the causes and effects–immediate and longer-term–of change in the legal marketplace. Such analysis is a busman’s holiday for lawyers who have a proclivity for identifying “issues” (read: “problems”) but are far less likely to advance solutions. Most everyone agrees by now that the legal landscape is changing noticeably, rapidly, and with an uncertainty about where it will all end. Still, the “issue” focus remains on familiar topics: the billable hour, BigLaw’s crumbling pyramidal structure, “alternative providers”, and the like. But the changes affecting the legal marketplace are much bigger and more profound than that. Attention legal vertical: law is not an island and, were it so, it would be buffeted by a perfect storm about to engulf it. So what are those factors and what to do about them?
- Legal Education and the Broader Education Breakdown
Let’s start with legal education, the supplier of new lawyers. It is under siege–though one would not think so were one to spend time at law schools as I have. Law schools are confronting an unholy Trinity of factors: (1) huge student debt (the national average–not including undergraduate obligations–is $120K); (2) abysmal post-graduation employment rates (nationally, almost half of law school products do not have jobs requiring legal licensure nine months after graduating); and (3) an absence of skills required for the legal marketplace (and this is coupled with the decline of mentorship/on-the-job training). This sorry state of affairs is especially shocking for professional schools. What is the response from most law schools? Find new revenue streams. While a few “bespoke” law schools–the top 10 or so–might be largely immune from these challenges (see below for parallel to “the 1%” law firms), one must take notice when mainstream publications question “Is Law School Worth It?” and when applications to law school experience a steady–if not precipitous–decline.
The woes of legal education parallel those of the broken undergraduate model. The same toxic factors confronting law students affect undergraduates. Like law schools, undergraduate tuition has risen dramatically thanks to the “arms race” (in the form of new buildings and amenities having nothing to do with enhancing “value” to the students’ education (as opposed to comfort), bloated administrative fiefdoms, an emphasis on faculty “scholarship” (see our Chief Justice’s candidly caustic views on that one) and student “rebates.” One other insidious factor is the ease with which students can borrow to finance an education which may, in the first instance, be virtually worthless (not to mention that nearly half of matriculating Freshmen do not graduate). Is anyone thinking sub-prime loans? Before moving on, I have–and will continue to–offer some solutions for law schools.
- Technology as a Disruptor in the Legal Vertical and Beyond
Now let’s look at law firms who, for years, were the dominant service providers to legal consumers. Let’s start with the retail segment. Most people cannot afford a lawyer. This has created a huge access to justice crisis (The “Fat Middle” and the “Lean Middle”). In response to this some upstart legal document/IT companies–most notably LegalZoom and Rocket Lawyer–have sprung up in an effort to fill the need. And they do–to a limited degree. But documents only take the layman so far, and the access to justice crisis persists. In the meantime, LegalZoom, Rocket Lawyer, and other legal service providers are taking a chunk out of the pockets of lawyers and small firms who service the retail end of the market. And there appears to be no sign of letting up. One suggestion for these lawyers: look to technology platforms that enable them to join forces (think: crowdsource networks) and to become a more unified segment of a very fragmented section of the legal marketplace.
BigLaw is feeling it too. While the “bespoke” firms are rapidly becoming the legal vertical’s 1%, other firms are scrambling. And it’s not just because the hourly bill is being challenged or that RFP’s, procurement officers, and auditors of legal invoices are proliferating. Technology has disrupted the legal industry, accelerating the unbundling of legal tasks, creating non-law firm competition for firms, replacing certain “services” with “products”, and debunking the long-standing urban myth that all legal tasks must be performed by lawyers. Of course, similar disruption ignited by technology is evident across a wide spectrum of service industries and businesses. But again, that same technology could be used to create new types of law firms and service providers, entities less tied to expensive real estate and its concomitant trappings that add no client value and inflate the cost of services. Just as retail lawyers have new opportunities to band together in a collaborative way (think: a rising tide lifts all boats) so too can the non-bespoke law firms (all but a handful) work in a more collaborative way to drive down cost, match the appropriate source to the task, and bridge the cost/value divide that clients decry.
- The Ascent of the Informed, Value Driven Consumer
Finally, let’s quickly examine the client side and, more specifically, focus on the corporate end. For years, corporate clients were content to pay legal bills that typically read: “For Services Rendered.” Legal fees were but a rounding error in large company budgets, and there was no need to quibble about such trusted advisers’ invoices. But all that has changed, especially post-2008. Though some might argue that the outsourcing movement that predated the Lehman collapse and the ensuing economic maelstrom by a decade was the starting point for this fiscal belt-tightening, legal fees came under frontal assault in 2008. It is no coincidence that the ACC launched its “Value Challenge” at this time. Interestingly, “rack rates” of BigLaw continue to rise; however, the negotiated rates and pressure to reduce fees–not to mention the unbundling of legal tasks–have put enormous pressure on all but the 1%. Several large firms have dissolved, and the uptick in “mergers” (in most instances efforts to forestall bankruptcy) has accelerated. Many large companies have built huge in-house legal departments which, ironically, often mimic the large law firms their senior management frequently came from. But whether the bulk of the work is performed in-house, is outsourced, or a combination, it’s clear that there is more “comparative shopping” than ever before. Is this any different than the retail industry where the Internet and social media provide consumers the ability to obtain information quickly and to use it to their advantage in finding the best deal? The BigLaw model is certainly broken, but consumers are now armed with more information–which they can use to their purchasing advantage–than ever before. Law is now subject to consumer transparency, and it is having trouble adjusting.
- Final Thoughts
I devised and teach a course at Georgetown Law School called: “The Legal System in Transition: Changes, Challenges, New Models, and Opportunities.” The key word in that lengthy title is “opportunities.” Change usually produces hand-wringing among those affected (or as T.S. Eliot wrote in The Journey of the Magi: “no longer at ease in the old dispensation.”). For lawyers it is evident that the “old dispensation” is unlikely to return (or as legal pundits describe things, there is a “new normal.”). But it is not all gloom and doom. That new normal is rife with opportunity, and that opportunity will be seized by those who recognize it and harness the broader changes driving change to law: technology, consumer awareness, desire for greater transparency and value, and collaboration. When those elements are effectively harnessed, the legal industry–like the larger world it operates in–will be a very different, hopefully better, place. But like it or not, there is no turning back.