Law Practice versus Legal Services Delivery
We need to distinguish between what lawyers do (the practice of law) and legal services delivery. How lawyers practice and the rules governing them – rules of evidence, ethics rules – have not changed very much. Lawyers exercise independent judgment to advise client.
Contrast that with tectonic changes in the delivery of legal services. The structures under which lawyers operate and the ways organization operate have changed tremendously over the last decade.
Until about 20 years ago, law firms had a hegemony over legal services. They did all the work, including back-office work, to support law practice. Since then, disaggregation has been playing out. New players entered the legal supply change.
Law Firm Substitutes and the Legal Supply Chains
So we need to look at the substitutes for and competition to law firms for delivering legal services to understand the transformation of the delivery of law.
In-house Counsel. Foremost are the clients themselves – in-house law departments. Cites as an example Shell Oil, which has brought much legal work in-house. (When Shell divested $5B of assets in US a few years ago, it’s total outside legal spend was less than $100k).
Alternate Providers. We have also seen the rise of alternative service providers, including players such as Axiom Law and LegalZoom. Axiom recently signed a $70M deal with Credit Suisse to do sophisticated legal work. Note that Axiom is not a law firm; it’s a legal services provider. The distinction is pretty blurred. The difference? The law firm ultimately retains the risk (malpractice). A legal services provider is an agent of the law firm or law department that retains it. That said, if you line up the offerings of law firms and some legal services providers, it’s hard to tell the difference.
Law Firms Respond to Changes. With these changes, law firms have not stood still. Some work with legal service providers in alliances. Others go into these “cottage legal services” on their own. For example, Allen & Overy started 2 years ago with “five flavors of law” that include working on high volume, lower value work.
The Big 4. The Big 4 are another factor. They show signs of significantly encroaching into the legal market. You may recall in the 1980s and 90s they did this. Then the regs changed. But now they are back – and have more lawyers than all but the largest firms. Three of the Big 4 law firms have ABS license in the UK, so they can function as law firms there. Note that the revenue of the Big 4 dwarves that of large law firms – by an order of magnitude. Plus the Big 4 have much stronger global brands than any law firms.
The players other than law firms view the legal problems as one part of an overall business problem to solve. If law firms want to succeed, they need to focus more on the business.
Factors that Will Shape the Future
Globalization. Tom Friedman pointed out (The World is Flat) the ability easily to move work around the world. [This gave rise to legal process outsourcing, LPO.]
Innovation. Clay Christiansen developed the Innovators Dilemma, pointing out that innovation stems from start-ups that focus on corners of the market the entrenched players ignore. The rise of ediscovery vendors and managed document review vendors are the manifestation of this phenomenon. Now, we see more sophisticated task being disaggregated to legal services providers.
Technology. Technology is now a ubiquitous factor in the delivery of legal services. Mark endorse the ABA new model rule that requires lawyers demonstrate minimum technological competence. Even the ABA,, which are “the most protectionist organizations known to man”, have passed this rule. That tells you about the importance of tech to law.
Metrics. We are also in an age of metrics. Use the analogy of baseball, which has gone through waves of metrics, most recently Moneyball. Mark finds it remarkable that baseball can be so much further advanced in metrics that the $650B global legal market is. Largely metrics to date focus on costs – not on outcomes and results. You will be talking more about enterprise legal management at this conference, which is an example of the growth of metrics.
Global Economic Crisis. The global economic crisis forced belt tightening and a re-thinking of how enterprises get more for less. Legal spend historically was less than 0.5%. But by 2008 it had grown and so corporate management put a bulls-eye on it to reduce. That gave rise to the ACC value challenge and other initiatives. Results are mixed but more attention is being paid.
Re-Regulation. In the UK, the legal regulatory regimes has changed signifcantly. North American vitriolic attacks on those changes (alternate business structures) overlook the conflicts of interest that the focus on PEP creates. The effect of re-regulation means more and more business people are entering the legal vertical. They are applying the same standards, processes, and metrics to law as apply to businesses.
New Competition on Sources of Law. References Justice Breyer’s book on the US looking to sources of law outside of the US. There is movement to framing US law in a global context.
All of the above has given rise to a parlor game of who will disrupt the legal industry. Not sure this will happen.
This is the age of the legal entrepreneur. This is good because it’s unlikely that law firms will drive change or innovation.
Tech and process players will continue to play a bigger role. Lawyers will increasingly work in a variety of organization, not just law firms.
Legal education will have to change. Law schools can no longer operate on the assumption that all they have to do is train lawyers for large law firms.
So what is the best entrepreneurial in legal today? Mark would start a law firm with a completely different structure and set of players, assembling talent and tech from multiple locations and disciplines.
Where we are today is just the beginning of a new normal. IT by itself will not change the legal industry but will have a big role in shaping it.
This article was originally published on LinkedIn by Ron Friedmann and is re-published here with the permission of the author.
Ron Friedmann is an expert in law practice management, outsourcing, knowledge management, e-discovery, legal marketing, and technology for lawyers. Ron helps law firms increase profits by improving law practice and legal business management with technology, better resource selection, KM, deep client understanding, and process improvement. He helps law departments “do more with less.” Ron is a consultant with Fireman & Company. Previously, he worked fours years at the leading legal outsourcing company, Integreon, first running global marketing, then heading US consulting for legal operations and transformation.