Archives for February 2011

Legal Tech at the Crossroads

February 21, 2011

With all the uncertainty roiling the corporate legal market, many are turning to technology as a big part of the answer. It will be for some things and it may be for many others. (Part II is here; Part III is here).

But there is a syllogism underpinning much of the debate. Here it is:

1. Corporate legal needs change.

2. Technology is change.

3. Corporate legal needs technology.

Under this simple mantra, legal tech becomes the default solution to a lot of problems. Those who question it can be branded Luddites. And in the legal market, Lord knows, they may be.
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Lawyers Who Don’t Create Serve at Their Peril

February 17, 2011

Former hedge fund manager and author Andy Kessler takes aim at jobs at risk from technology in an op-ed piece in today’s Wall Street Journal. And he manages to find lawyers in the crosshairs. Since CEOs and CFOs read the WSJ, you should, too.

Mr. Kessler’s main distinction in the new economy is between creators and servers. It’s no surprise you don’t want to be in the latter, but that’s where he squarely places lawyers:

Servers, on the other hand, service these creators (and other servers) by building homes, providing food, offering legal advice, and working at the Department of Motor Vehicles. Many servers will be replaced by machines, by computers and by changes in how business operates.

Ouch. He had to lump us in with the DMV.

Not content with the generic “servers” tag, Mr. Kessler further sharpens his pencil. The sub-category that snares lawyers: sponges:

Sponges are those who earned their jobs by passing a test meant to limit supply. According to this newspaper, 23% of U.S. workers now need a state license. The Series 7 exam is required for stock brokers. Cosmetologists, real estate brokers, doctors and lawyers all need government certification. All this does is legally bar others from doing the same job, so existing workers can charge more and sponge off the rest of us.

Rather overbroad, to be sure. I hope most lawyers can provide more value than a make-up artist, but who knows these days?

Mr. Kessler then shows that he knows something about the legal field, probably from litigation in his hedge fund days:

But eDiscovery is the hottest thing right now in corporate legal departments. The software scans documents and looks for important keywords and phrases, displacing lawyers and paralegals who charge hundreds of dollars per hour to read the often millions of litigation documents. Lawyers, understandably, hate eDiscovery.

I know more than one GC who would dispute that eDiscovery necessarily entails lower costs.

Mr. Kessler has seen a lot of technology-driven trends before others, and his writings, while sometimes controversial, are always thought-provoking. More of them are available at his blog here, which has links to his books. (His new book is “Eat People: And Other Unapologetic Rules for Game-Changing Entrepreneurs.”)

Lawyers can be creators. In the current model of delivering legal services, many aren’t. Yet most law firms want to price servers the same as creators. Many agree what is happening with that.

But if Mr. Kessler really thinks that technology is a relentless driver of change, he’s probably never tried selling legal technology solutions to law firms or legal departments. Ask someone who has, preferably over a drink that you have provided.

And while I obviously believe change is here for the law, I think it’s coming to legal technology as well. It might bring new meaning to the term client/server.

Billable Hour Promo Video Leaked

February 15, 2011

Fresh on the heels of yesterday’s discussion about the real meanings behind the Billable Hour debate, something showed up in my email inbox late last night.

I can’t confirm the authenticity of the video. One source said it is an early demo version of a promo video to be shown before the keynote at the next annual meeting of a major legal organization. Another source said it was commissioned by a major international law firm as a way to rally the troops at the next partners’ retreat.

Rear-guard act of desperation, or savvy disinformation by an AFA guru? Decide for yourself.

I anticipate getting a C&D sometime in the next 48 hours, so watch it while you can. Whatever the source, someone really dug deep for the archival footage of Honest Abe doodling after one of his many lost elections. Color, no less.

The Billable Hour Alarm Clock

February 14, 2011

You know it’s going to be a great week when the first thing you hear Monday morning is the president of the American Bar Association talking about the Billable Hour.

ABA president Stephen Zack was interviewed this morning on NPR’s Marketplace. Full text and audio are here. President Zack responds to a question about client interest in alternatives to the billable hour by touching all the bases:

The clients and the lawyers recognize that we have to have a partnership when we represent a client and their interest and the lawyers interest have to be one in the same and that is to efficiently deliver legal services and provide value.

Wow, that’s a mouthful! Mr. Zack then continues, when asked whether this “change” could mean less money for lawyers:

Well, value billing doesn’t mean less money. It could mean more money. If in fact you have a multimillion dollar lawsuit and you are able to resolve that lawsuit with one phone call let’s say, aren’t you happy to pay a value-related result as opposed to having to try the case for several years, pay those fees, and then on top of it have to pay the verdict.

A-hah!

There you have it. Just when you think a sign of progress on legal cost control is the mainstreaming of the issue on NPR’s morning business segment, the ABA president lets us know that alternative billing can be about more money, if clever outside counsel play their cards and structure their AFAs right.

Mr. Zack certainly knows something about fees and incentives, given his service with the Boies, Schiller & Flexner law firm. That firm takes on significant cases, at real risk, and often shares in the upside with very satisfied clients.

But it is not a marker for mainstream corporate legal services. And the bromide about clients and outside counsel “partnering” is a very tired one in the circles I travel in.

For the vast majority of legal services, GCs are looking for solutions, not partners. Heck, many law firm partners aren’t really even partners, so how could a client be one?

The interview ends with this nugget from Mr. Zack, when asked if lawyers could sometimes leave money on the table:

That’s part of it. It’s got to be fair on both sides. And if not, there are folks that feel very comfortable that the hourly billing is working well for them and they’re going to continue to use it. So we’ve got to find a way that lawyers are adequately compensated but more importantly that the client feels that they are getting what they’re paying for.

That’s fine, but it turns on what you mean by “adequate compensation.” In the next wave of change for corporate legal services, many if not most firms in the Am Law 200 are going to find out that client’s don’t value their services for what their costs + profits demand.

It’s not a pretty reality for the large-firm dominated American Bar Association. And it is a reminder for all GCs that before you spend many months on an AFA, consider whether the work in the meantime could be done by a lower-cost option.

Maybe by a member of the BBA: the Bangalore Bar Association.

Now that’s a wake-up call.

Client Minimums and the Smaller Firm

February 11, 2011

At least one large law firm is talking about setting annual client billing minimums, perhaps approaching $200,000. If you won’t meet it, you can’t come aboard. Down the road, if you don’t meet it, we might show you the door.

Much rejoicing for small firms or solos, right?

No so fast, my little friend.

The firm that set this off is one of the largest global law firms. As one intrepid GC has pointed out, if you can’t meet the minimums with your international spend, then you really aren’t trying. And for a large law firm to risk big conflicts over small clients doesn’t make legal or business sense.

That is why I think minimums for global law firms (to call them large also seems oxymoronic) will actually move up, that $200,000 could just be a starting point.

It is another example that the legal industry is splintering; clearly small local firms in the US are not going to serve clients on global matters. Will they get some clients that formerly went to larger firms? Just be careful about what you mean by smaller. The firm that set this off notes that it has “3,500 lawyers located in 30 countries and 69 offices.” So a firm of 500 lawyers is *smaller*, just not *small*.

Larger national law firms would probably pick up the slack in the first instance. Smaller firms with specialized practices or mega-firm diaspora are next. Solos? Maybe, but likely only with knowing one of the client’s senior executives or board members. The only solos I know who are doing high-level corporate work (i.e., for publicly-held or venture-stage companies) know the CEO or a board member. Litigation or one-off stuff (employment, real estate, etc) is different.

As I mentioned Monday, one of the most interesting aspects of the client minimum issue is what it means to senior associates or junior (non-equity) partners. If you have some real expertise, client relationship skills, and guts, you have to think about going free agent. Taking your legal talents to (a virtual) South Beach.

These “new solos” won’t be solos in the traditional sense, in that they cast a wide net and take a lot of different work that comes through the door. In fact, if they are working out of a spare bedroom, there is no door, not even a shingle.

For all client-facing purposes, though, they will appear the same as they did when they were at GlobalMegaLaw. For now, this is not a competitive threat to GlobalMegaLaw. But it is potential collateral damage of the new policy. Some of your best people will leave. And some of those that stay are not the type that attract clients in the first place.

When you Google the firm that started the debate, the summary on the initial search page says it “represents emerging growth and high technology companies.” The challenge will be that when the once and future minimums kick in, they may keep emerging growth companies from splurging on their services in the first place. Would they have taken Facebook or Twitter or Groupon as clients at the start?

If your short-term strategy means you let growing companies slip through your grasp, you are committed to the big-fish low-growth pool. That is where all your competitors are, and they may have trawlers and larger nets.

And as far as the lawyer you let get away, she has a more basic approach to the clients you threw back.