The Legal Market Revolution is Happening Today—With or Without You

I'm a big fan of Paul Lippe's legal column for The Am Law Daily called “Welcome to the Future” and have been reading it regularly for the past six months or so. I noticed that the final paragraph of his recent interview with David Baca, chairman of the Seattle-based law firm Davis Wright Tremaine, summarized so much of the buzz that has been going around lately on the potential for real change, death of the billable hour, and profits per partner as a metric—which have all been frequent topics of Paul's, as well as so many other "oracles" of the legal market. (For disclosure purposes, DWT has been a customer of Two Step Software for the past 5 years.)

In Lippe's February 17, 2009 column, “Welcome to the Future: A View from the Left Coast,” Baca offers the following insights:

"There is no question in my mind that technology will upend the legal industry. Clients aren't going to keep paying for information they can get for free online. They will pay for judgment, for talent aggregation, for things that increase their profits or peace of mind. But we're going to have to redefine what our "service" is and how we deliver it. As with all industries that technology has upended, some firms will end up doing really well and some will struggle or cease to exist.

"Most law firms, including ours, aren't doing as well as they should using technology to create more value for clients. In most cases, we all haven't felt the same sense of urgency that our clients have. Candidly, the dominance of the billable hour model has meant that there has been very little reason for law firms to innovate or to use technology to enhance efficiency. Moreover, the structure and decision making processes in a large partnership makes change hard and slow. The status quo has been pretty good to most of us. And a lot of firms have wasted a lot of money on technology projects that weren't thought through or properly executed, which makes people more skeptical."

I’d like to highlight parts of Baca's statement that speak to the current upheaval in the legal market and what it foretells:

1) Technology will upend the legal industry. This sentiment has been heralded for many years by practitioners and thought leaders alike. To quote Richard Susskind in an earlier interview with Lippe (in which he calls Susskind "the world's pre-eminent legal futurist"): "In 2000, I was urging lawyers to adopt some exciting technologies which would support the way they worked. Now I am saying lawyers must adapt because new technologies that are coming through are 'disruptive.'”

Susskind predicts that lawyers who are unwilling to adapt will "struggle to survive." We've seen it with records and iTunes; we've seen it with newspapers and digital media; and we’re currently watching it unfold in the auto industry. With the powerful impact of technology on efficiency and choice, it's never a question of whether, but only a question of when.

2) Clients will pay for judgment and not information they can get free online. Lippe previously mentioned a business model used by Jeff Carr, the General Counsel at FMC Technologies, which breaks legal services into four categories: counseling, advocacy, content, and process. Carr says that firms excel at the first two categories, but that clients end up paying mostly for content and process because they consume so many hours.

Lippe explains that since many firms have bundled all four categories, they've been able to overcharge for content and process, "failing to apply the kinds of process and technology innovations that are common among their clients." In better days, this may have been acceptable, but as clients become more savvy and cost-conscious in the economic downturn, they will find alternatives in which they’re paying primarily for the high-value components of legal services: counseling and advocacy.

3) Most firms aren't doing well to create value for clients. Marc Chandler, General Counsel of Cisco, may have said it best: "The greatest vulnerability of the legal industry is a failure to drive models based on value and efficiency and to make information more accessible to clients. The good news is that greater efficiency will create more value for clients. The bad news is that higher levels of efficiency by some raise the bar for others in a competitive market.”

4) The billable hour model has given law firms little reason to innovate or to use technology to enhance efficiency. Increasingly, in-house counsel at major clients have been pressuring law firms to accept alternative, value-based billing methods. Other firms are offering new and innovative ways to lower their hourly rates when it makes business sense. The glacial pace of change may have been dealt an asteroidal blow this past December, when the presiding partner at Cravath Swaine & Moore, Evan Chesler, wrote his "Kill the Billable Hour" article for Forbes magazine. From that point forward, the topic reached the front page of every major business publication and got stuck in the frontal lobe of every CEO and General Counsel nationwide.

5) The structure of law firms makes change hard and slow. As Baca explains, there is something about the decision making process of a large partnership that contributes to slow change. Having worked as a vendor to hundreds of law firms over the past 15 years, I can attest to this. However, lawyers are leaving firms in droves in the current economic market, forced to start new firms and specialized boutiques. These new “high-quality” firms will put pressure on larger firms to change as they tear away just enough business to make an impression.

Don’t Miss the Two Step Webinar on March 3rd

Paul Lippe is the founder and CEO of Legal OnRamp (www.legalonramp.com), a legal online community, and will be one of the featured speakers at a free Two Step Software webinar being held on March 3, 2009, entitled: “Productivity, Service, and Partnership: What They Mean to Your Law Firm's Future.” If you’re looking to understand how marketplace change will affect your law firm’s odds of success or even survival, it will be worth your time to attend.

I also encourage you to be a part of the ongoing discussion by checking out Lippe’s “Welcome to the Future” column and joining Legal OnRamp. The future has a way of sneaking up on you if you’re not paying attention. It's happening now, so get on board—or get left behind.

Gary D. Levine, President and CEO
Two Step Software, Inc.
www.CapitalizationMatters.com

This blog

by Gary Levine - Gary Levine is the CEO and Founder of Two Step Software which provides market leading solutions for stock plan administration and corporate governance. His perspective is based on 20 years of experience.

 

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