The End of the American Way?

by Timothy B. Corcoran on August 19, 2010

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Jordan Furlong authored yet another excellent article on his Law21 blog, this time about the potential obsolescence of law firms whose leaders are too clueless to see and react to the changes in the market.  See How to Kill a Law Firm.  He refers to the rapid, but not unexpected, emergence of new competitors to the traditional large law firm. Firms such as Legal Process Outsourcing (LPO) providers, technology vendors, small firms enabled with technology and low cost structures and access to virtual resources able to compete with global firms, and so on.

As Jordan paints the picture, law firm leaders should have something to fear from competitors who employ a rigorous approach to entering new markets, with the discipline to get out if they can’t succeed:

“Accordingly, these entities are now sizing up the legal profession, looking for weaknesses and soft spots to exploit. They have several advantages, including financing, business savvy, and patience. But their most powerful weapon is their attitude: unlike most lawyers, they believe there’s nothing natural or pre-ordained about lawyers’ domination of the legal services marketplace, and they believe it can be ended within the decade. Very few lawyers believe this, and very few law firms are taking the Jack Welch approach of both knowing your enemy and adopting its methods.”

But are law firm leaders listening? And does the problem lie primarily with the large law firm mindset?

In the past several years I’ve delivered multiple talks to groups of lawyers on the future of the legal profession. In one notable case, I explained how in a previous life my team and I determined that our business could disintermediate hundreds of law firms, save the courts time and expense and return to defendants millions if not billions of dollars that were otherwise diverted for plaintiff lawyer fees.

How? Well the details aren’t all that important, but suffice it to say that a company routinely hired by plaintiff lawyers to find hundreds, thousands, even millions of potential claimants; assess eligibility of these claimants; gather, compile and submit documents on behalf of all qualified claimants to the court; receive and safeguard settlement funds; disburse these funds according to court guidelines to all qualified claimants; and provide regular compliance reports to the court; could quite easily add a plaintiff lawyer or two to the payroll and eliminate the need for injured parties to give up 30-40% of an earned settlement by hiring individual plaintiff lawyers to represent them. Our staff plaintiff lawyers could handle the legal work while we would automate the rest.

Sure there are some holes, and it’s a tad more complicated than it appears, but with time and energy we knew we could address these issues. After all, when the most successful plaintiff lawyers travel around in their privately-owned jets, we correctly deduced that there was enough financial incentive for plaintiffs/claimants to try a new approach if it meant keeping more of the settlement they “earned” through some hardship.

Now, I have no particular beef with plaintiff lawyers, and I believe they perform a critical role in our society and they deserve to be richly compensated for their efforts. But that doesn’t mean as a businessman I like them enough to not find a way to do what they do more efficiently, and in so doing earn some of the proceeds of that efficiency.  I like my Audi too, but on my next purchase I’ll still try to obtain the best deal.

One of the plaintiff lawyers in the room where I gave this anecdote, a former leader of her local Bar Association, rose in outrage. She proclaimed that what I described was nothing short of a second American Revolution, requiring the suspension of the rule of law and leading to a complete loss of freedom and the American way. She was dead serious. Her inability to see how technology and savvy business processes were better for her clients than her warehouse full of disorganized boxes of claims and supporting documents led her to perceive that any change to the status quo was tantamount to anarchy.

Similarly, in my large law engagements I’m regularly confronted with partners whose every action shouted “This is the way it is, the way it’s always been, and the way it always will be, and I have only so much patience for you little people who suggest I change my ways merely because the clients desire I do so.”

Lest I and other pundits like me come across as somehow disgruntled with the legal profession, nothing could be further from the truth. I’ve spent most of my adult life working to support and improve the business of the legal profession. It’s frustrating to see such obvious opportunities for positive change overlooked by leaders of enterprises whose primary focus should be on operational improvements to win and keep business. Instead I see a lot of hand wringing, hiding in the sand and cost-cutting masquerading as business process improvement.

I’m hopeful law firm leaders will learn. In some cases it may be only after they’re hired as a salaried lawyer by an entrepreneurial outfit that siphoned off their firm’s clients, improved efficiency, quality and client satisfaction, lowered costs and increased profitability.  And they’ll eventually learn how startling easy it can be, relative to obsolescence.

No reason that entrepreneurial outfit can’t be your own firm, starting today.

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{ 2 comments… read them below or add one }

Mike O'Horo August 31, 2010 at 12:20 am

Kudos, Tim, for speaking so simply yet eloquently about yet another group trying to protect the status quo, not realizing that their power to do so eroded long ago.

Those who’ve been around the law biz for more than a while may remember a period in the mid-90s when the major Boogeyman looming over the profession was the idea of multi-disciplinary law practice (MDP), a cumbersome term for the kind of vertical integration that has occurred in every market sector that ever existed. Many law firms, particularly large ones, actually saw it as an opportunity, but as a whole, the profession took to the ramparts to defend its birthright, with the vanguard being State Bar associations (who, unlike the ABA, hold actual licensing power over attorneys).

At the time, there was a powerful wave building in favor of MDPs. Clients seemed to favor them, as did lots of big law firms. Yet, the various State Bars, through very “closely controlled studies,” simply declared that the hurricane would not be permitted to come ashore. As it turned out, MDPs got undermined by other market forces, so the big Clients vs. State Bar test never occurred.

Before writing this, out of curiosity I Googled “multi-discipline law practice study,” and was surprised (although I guess I had no right to be) by the first Google result: a January 11, 2010 report by the North Carolina Bar Association Committee on Multi-Disciplinary Practice. I’ve copied the story’s lead below. Pay particular attention to the final paragraph.

The MDP Task Force Recommendation is summarized as follows:
1. The Task Force does not believe lawyers should practice law in fully integrated multidisciplinary practices because the core values of the legal profession cannot be adequately protected. Such values are independence, avoidance of conflicts of interest, confidentiality, competence, public service and officer of the court.

2. The Task Force believes lawyers should be allowed to enter into strategic alliances with other professionals to provide professional services so long as there are adequate safeguards to preserve the core values of the legal profession.

3. The Task Force believes the NCBA needs to be vigilant in its consideration of unauthorized practice of law and unethical practice by licensed attorneys.

The preceding recommendation is similar to the recommendation adopted by the House of Delegates of the American Bar Association in July 2000.

In my view, this is just an archetype, a particularly egregious example of the institutionalization of the profession’s head-in-the-sand response to inevitable change. If corporations 100 times the size of the largest law firms find their markets and competitive situations changing so radically that they must completely reorganize, not just once in their existence, but every decade or less, how is it that lawyers persist in the belief that they are somehow immune to such macro-forces?

One timely caution is found in the disclaimer typically attached to securities prospectuses: “Past performance is not a guarantee of future performance.” Law firms have made tons of money during their prolonged boom. Good for them. I hope the partners hung onto some of it, because very soon they’ll face the equivalent of a capital call when they finally grasp the fact that they’ll have to invest heavily to reinvent themselves to avoid extinction.

We’re already seeing the effect of the handful of virtual law firms and networks that have arisen over the past two years. Many partners who opted out of BigLaw in favor of this new model say they tired of the obscene cost structure of BigLaw, were embarrassed to have to quote $900/hr or more to longtime clients who were struggling financially, and sick of propping up what many considered excessive dead weight in the ranks of their former firms.

Steven N. Peskind August 19, 2010 at 11:58 am

Not unlike newspapers, lawyers may not figure this out until it is too late. Thanks for the reminder! SNP

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