Kraft Heinz, the Fortune 500, $100 billion food giant, recently hired 29-year old David Knopf as its new Chief Financial Officer. His promotion, according to a recent Forbes article “is another sign that financial professionals are accumulating more and more responsibility at a younger age.” If Goliath multinationals give wunderkinds a C-Suite seat, why not law? Three reasons are: (1) legal culture; (2) macroeconomic changes that have reshaped the buy-sell dynamic and the vacuum created by law firms’ failure to respond; and (3) the distinction between legal ‘practice’ and ‘delivery.’
Legal Culture Is About Lawyers and Pedigree–Business Keys are Right Resources and Results
Legal culture was fashioned by white, middle-aged lawyers for their peers. This preserved the industry’s homogeneity, and self-regulation maintained its insularity. Lawyers created a ‘legal language’ devoid of plain speak–no doubt to create a verbal moat between ‘lawyers and non-lawyers.’ Legal culture promoted ‘lawyer exceptionalism’ and fueled the myth that everything lawyers do is ‘bespoke’ and requires a formal legal education/licensure. Lawyers–especially those in larger firms–gained the bulk of their experience during years of phased apprenticeship at the firm. The hierarchical structure of law firms militated against meteoric rises, so firm leadership was typically comprised of ‘seasoned’ lawyers–especially those with a book of business. Law was predictable, steady, and static. Those that paid their dues–worked hard, billed exorbitant hours, and fit the firm’s profile were ultimately promoted to partnership–or became partners at lesser firms. The skills necessary to succeed were: knowledge of the law, hard work, endurance, patience, risk aversion, and the ability to maintain client relationships and to create new ones. Innovation was not part of the bargain. Creativity and ‘fresh ideas’ were neither encouraged nor generally well-received. Large firms had an ‘if it ain’t broke don’t fix it’ mentality. As Richard Susskind wryly observed, ‘It’s hard to convince a roomful of millionaires that their economic model is wrong.’
The process was simple and repeated over decades: a company had a legal matter; in-house counsel sourced it to a law firm with whom it ‘had a relationship’; the firm’s lawyers handled all facets of the case start-to-to finish; a bill ‘for services rendered’ was submitted and paid. Rinse and repeat. Law firms rode the wave of their clients’ expansion–first nationally and later internationally. Firms grew and prospered even as the businesses they represented became increasingly diversified, complex, and reliant upon technology and process to conduct operations. Law firms continued to ‘engage in the practice of law’–applying a ‘brute force, ’labor-intensive, ‘leave no stone unturned’ approach even as their clients’ volume of data, regulatory challenges, and trans-border operations demanded that the delivery of legal services–the business of law– be rendered more efficiently and cost-effectively.
Business operates by taking calculated risk and embracing innovation, automation, and digitization; law firms have continued to sell high-priced labor and pedigree–even for the many tasks that do not warrant it. This has created misalignment between firms and clients and has led to a significant diminution of firm market share. Law firms are playing checkers–clients chess.
The Legal Industry Has Been Slow to Adapt to Powerful Socioeconomic Forces That Have Changed the Buy-Sell Dynamic
A Trinity of powerful socioeconomic forces has reshaped the way people live and work across the globe. Those forces are: (1) remarkable advances in technology; (2) globalization; and (3) fallout from the global financial crisis of 2007. The confluence of these factors–and social media –has created a digital marketplace–the intersection of expertise, technology, and process that has altered the way goods and services are bought and sold, providing customers with provider access and transparency; heightened competition; and a reconfigured division of labor operating from new delivery models. Digitization has upended incumbent providers that have failed to embrace it. Medicine, for example has morphed from ‘medical practice’ to ‘the delivery of healthcare services. The medical profession offers a glimpse into law’s future; physician time is now leveraged by machines, process, other professionals and paraprofessionals. Physicians perform only high-value tasks that warrant their differentiated professional expertise, skills, and training–machines and/or others human resources in the supply chain do the rest. Law–like medicine decades earlier–is undergoing a fundamental reshuffling of the deck.
Lawyers are not becoming obsolete, but the way they function, are evaluated, and rewarded–is undergoing a sea change. New players with different skillsets–notably those with STEM, process and project management, business, financial, analytics, and social science backgrounds should–and will soon–have seats at law’s management table. The relevant expertise and experience warranting a senior management position in the legal industry is changing rapidly. Law is not just about lawyers anymore. Seasoned attorneys with differentiated practice excellence, experience, and networks will remain in leadership positions, but they will be complemented by other professionals and paraprofessionals with different skillsets. For example, those trained to manage highly sophisticated, global operations that are tech and process enabled are just as important as silver-haired legal practice managers. Besides different skillsets and a more diverse management team, legal delivery is undergoing a cultural shift. It is customer-centric, metrics and outcome driven, digitized, automated, agile, innovative, collaborative, diverse, transparent and cost-effective. The Corporate Legal Operations Consortium (‘CLOC’), a handful of corporate legal departments, and integrated legal service providers like Elevate and UnitedLex are transforming the delivery paradigm by embracing these new cultural norms.
Legal Practice is Shrinking–The Delivery of Legal Services is Expanding.
Legal practice–core differentiated expertise and skills that require lawyers and command premium pricing–is narrowing. Many ‘legal’ tasks once performed solely by attorneys are now sourced to other professionals, paraprofessionals, and legal service providers that combine legal, technological, and process expertise to deliver legal services. Others are performed by machines or a combination of machines and labor sources that are not licensed attorneys. Many more ‘legal’ tasks have now morphed into ‘products’ This is additional evidence to support the conclusion that law has entered the digital age. This is the third phase of disaggregation, an evolutionary process of peeling work away from law firms. It began with labor arbitrage (staffing companies), morphed to a hybrid labor arbitrage/IT model (legal process outsourcing companies– ‘LPO’s’), and is now entering the digital phase, an integrated delivery model that leverages ‘practice’ with multiple business competencies that include data management, analytics, technical support, strategic planning, and a host of other core competencies.
Law firms offer ‘practice’ competency that, with a handful of exceptions, is largely undfferentiated. This explains the separation of a few elite firms from the pack as well as the recent ALM Intelligence Survey finding that only 25% of corporate legal work is now performed by law firms. The balance is handled by corporate legal departments and legal service providers. The rise of in-house legal operations teams (‘Legal Ops’) and outsourced service providers is further evidence of the growing distinction between ‘practice’ and ‘delivery’ of legal services. The former is shrinking while the latter is expanding thanks to technology and process adaptation. This has profound implications for all stakeholders in the legal ecosystem: law students, the Academy, law firms, in-house legal departments, and service providers. There’s no turning back from the digitization of legal delivery, and stakeholders had best be prepared for it and the new skills required.
Clayton Christensen’s theory of disruptive innovation posits that change starts from the bottom up. The retail legal market segment is indeed where the greatest industry disruption can be found. LegalZoom, for example, has served approximately 3.5 million customers, many of whom are new to the legal market and would have otherwise been shut out because of access and/or price constraints. LegalZoom’s blend of technology, process, agile services, customer accessibility and centricity has revolutionized the way millions have acquired access to legal services.The company offers different levels of lawyer involvement based upon the need for professional judgement and ‘customized’ service–as well as budget. LegalZoom’s customer approval rating–around 90%– is in marked contrast to traditional partnership firms whose low client satisfaction ratings have resulted in the seismic shift in market share.
Many legal innovators are not attorneys. Consider Joshua Browder, a 20-year old Stanford computer science undergrad who invented DoNot Pay, a legal chatbot–a machine with artificial intelligence the customer ‘chats’ with to secure legal information. After the initial success of this entry into legal service–delivered pro bono–Browder next developed a bot to help UK public housing applicants and residents with the myriad of forms required to apply for a residence, contest eviction, etc.. His latest bot allows individuals to file small claims against Equifax. Young Browder is already making a significant impact upon the access to justice crisis. His use of artificial intelligence (AI) to solve ‘wicked’ social problems is a glimpse into the future and promise of legal delivery.
The Romans said that ‘experience is the best teacher.’ The legal industry should ask, “What kind of experience and resources–human and/or machine– are required to make legal services more accessible, efficient, and better aligned with legal consumers’ needs, expectations, and means? Providers that satisfy those objectives will be legal delivery’s winners. And rest assured their senior management will not be dominated by lawyers.