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THE POINT

1. Unlike countries in Europe and Asia, Big 4 accounting firms are prohibited from offering corporate legal services in the U.S.

2. Through its rule-making state bar authorities (made up of lawyers), the U.S. legal profession is fighting tooth-and-nail to keep it this way.

DISCUSSION

U.S. law firms tout their prowess as legal powerhouses that a serious business cannot safely do without. In quiet conversations with in-house counsels and P&L executives alike, attorneys from these firms unsubtly invoke the fear-and-dependency that an earlier generation expressed this way:

“Nobody was ever fired for hiring IBM.”

For attorneys who sell their services this way, the last thing they want is competition from the likes of EY, PwC, Deloitte, and KPMG for substantial corporate legal work. 

That (along with other aspects of legal market structure) is what’s at stake in the following, arcane-sounding, legal “ethics” prohibition:

“A lawyer or law firm shall not share legal fees with a nonlawyer”.*

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Big 4 accounting firms have been practicing law outside the United States for a couple of decades.

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THE POINT

1. “Ethics” rules are the main determinant of how the legal market is structured: Who can do what? With whom? What is “practicing law”?

2. After decades of practicing business law, I believe that “ethics” rules structuring the market for legal services are largely about protecting lawyers from unwanted competition.

DISCUSSION

The legal profession decides who can do what in solving businesses’ legal problems.

They decide the circumstances in which lawyers may — and may not — work with people whom lawyers call “nonlawyers”. And they decide if solving a particular type of legal problem amounts to “practicing law” — something that only a licensed attorney is allowed to do.

The legal profession makes these decisions through state bar authorities that adopt rules of professional “ethics”.

Those state bar authorities are made up of … well … lawyers.

In the United States, attorneys set for themselves the competitive boundaries of markets in which they can sell their services — and in which they use the force of law to forbid others to compete with them.   Continue reading

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Speed-to-contract is vital to your revenues.

As a P&L executive you know that.

As a former P&L executive — now practicing law — I know that.

But too many lawyers just don’t. They focus on verbal tweaks and “improvements” that hold up the process.

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It was only after I accepted a corporate client’s invitation to leave law practice and run one of its divisions that I understood how important timely execution is to doing the deal. Until then I was preoccupied, like most of my lawyer colleagues, with constant adjustment of terms in pursuit of a legally perfect document.

Of course the answer can’t be that we eliminate attorneys’ contribution to all this. Speed-to-contract that ends up with the wrong contract terms is self-defeating.

But now there’s technology that helps to accelerate the pace, while incorporating good legal guidance into a much more agile and timely process.

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Last Thursday (March 5, 2020) I was, for the umpteenth time, shocked to be reminded of how un-businesslike the legal industry’s billable hour-based business model really is.

I say “un-businesslike” rather than “crazy” — or something more colorful — because the clients I serve are businesses themselves. And their businesses succeed or fail based on their results.

The legal industry (the vast majority at least) demands that their client businesses pay on the basis of lawyers’ inputs. And as I explain below, law firms charging by the billable hour business model routinely misstate what those inputs are.

So it’s no wonder that lawyers and business people have such a hard time understanding each other.

They literally occupy different universes.

From a commercial standpoint at least.

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So what shocked me last Thursday?

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P&L executives need to know that there are good places — and bad places — to find the specialist lawyer your company needs for an important task.

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I recount the following with my wife’s permission:

An alert physician identified a problem with the way her body was regulating calcium.

Her internist described three options for the needed parathyroid surgery:

Two of the most prestigious medical centers in our hometown of Chicago — and Tampa General Hospital.

The two Chicago options reported that they performed between 10 and 20 of these surgeries each month.

Tampa General Hospital: 180 per month (later we received reports of a higher number).

Two months later we flew to Tampa.

Results were perfect.

That’s the upbeat part of the story.

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P&L executives concerned with managing legal risk and controlling legal costs should know that artificial intelligence (AI) promises greater accuracy and lower costs in litigation tasks. If and when the legal industry adopts the technology.

And last month some of this promise appears to have been realized in some concrete, and economically accessible, terms. Again, conditional on actually acceptance and use of this AI. 

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For a business, litigation is (usually) a huge waste of money. And a large chunk of this wasted money goes to formal requests that lawyers make to judges. Requests that they and their adversaries spend lots of time (read “money”) fighting over in front of a judge.

It’s called “motion practice”: Your honor, please dismiss this case; please exclude this testimony; please make my adversary give me the papers in their files that I want to look at; etc.

In a legal industry where the number of hours billed (usually) defines value, this typically results in each law firm assigning not just a litigation veteran whom they put in charge of the case — but also multiple, less-experienced attorneys to maximize those hours billed.

How do these less-experienced attorneys fit in here? Happily (for the legal industry’s business model at least), “motion practice” requires lots of what those recent law grads were trained to do when still in law school: Researching cases, statutes, and rules; and creating “briefs” that describe why those legal authorities require that their client’s requests (via this “motion practice”) should be granted.

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Late last month, Casetext, a legal tech firm known for its artificial intelligence (AI) research tool “Case Analysis Research Assistant” (CARA), announced “Compose”, their automated brief-writing product.

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On bringing to Legal the same cost, staffing, and technology disciplines that apply everywhere else in the business enterprise — other than Legal — cooler heads have emerged. But they have not yet prevailed.

Many lawyers still blow litigation dangers and regulatory peril out of proportion to their real magnitude and immediacy.

Hit them in a particular mood, and they will advise executives — actually, they will threaten them — that cost efficiencies in the management of legal risk will court business catastrophe.

In my experience as an executive, such overreaction is more common in the legal profession’s interaction with business clients than less dramatic, practical judgment.

But there are some cooler heads out there, and they have ideas that are useful in differentiating between legal tasks. 

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Just last week Bruce MacEwan, and his two partners in a consultancy to law firms called AdamSmith, Esq., began a series on what’s called “segmentation” of law firms.

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On Saturday morning (January 11, 2019), I glanced at the front page of the Wall Street Journal that I held in my hand as I walked up the driveway to my house:

“MAX Chatter at Boeing Undercuts Its Public Stance”.

The first line:

“Striking internal messages released this week by Boeing Co. have undercut many of the plane maker’s defenses of its design and marketing decisions for the beleaguered 737 MAX jet.”

In the words of the Dallas Morning News:

“Boeing employees knew about problems with flight simulators for the now-grounded 737 Max and apparently tried to hide them from federal regulators, according to documents released Thursday.”

Of course, what’s most important here is the tragic fact of two crashes immediately on take-off, less than five months apart, and the deaths of 346 people. But along with profound human loss are this catastrophe’s devastating legal consequences for the Boeing Company.

And these legal problems posed by release of these documents arose before any attorney became involved with the acts, omissions, and representations to Boeing’s customers and regulators that those documents describe.

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The legal profession, for the most part, does not emphasize prevention.

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After 12 years running two divisions at Whirlpool Financial, and then as an executive at GE — and having been a business lawyer before that, and thereafter — I have reached this conclusion:

Protecting the business from legal risk should be entrusted mainly to management — with attorneys accountable to the CFO, COO, or some other P&L executive in a supporting role.

This goes against the legal profession’s prevailing outlook; and corporate practice has long conformed to that outlook:

“Management of legal risk is a job for lawyers”.

But that outlook fails to prevent legal problems; and it leads to ever-increasing legal spending.

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The legal profession as a whole tends to resist adoption of new technologies that can save on lawyer time and enhance the accuracy of work product.

This is because the legal profession’s prevailing business model is based on the following:

  1. Hourly billing, rather than pricing according to the task performed;
  2. Multiply the lawyers assigned to a task; and
  3. Assign recent law grads to do legal research and document review —training junior lawyers on the client’s dime.

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But there are exceptions.  

Consider Salazar Law, a boutique commercial law firm, founded by Luis Salazar, who practiced bankruptcy law for over 15 years as a partner at a large and prestigious international law firm.

He says this about why his firm adopted ROSS Intelligence — an artificial intelligence-driven legal research platform:

” … We were still practicing law … in the same way that we’d practiced for a hundred years, the same way Charles Dickens had written about it ….

“We really wanted to establish a new law firm that took advantage of new technology ….    

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