Managing Legal

A few years ago the Washington Post published an article entitled, “There Really are 50 Eskimo Words for ‘Snow'”:  ” … ‘Aqilokoq’ for ‘softly falling snow’ … ‘piegnartoq’ for ‘the snow good for driving sled’ ….”, etc. An Inuit living above the Arctic Circle needs to be precise in describing something so vital to daily survival.

So for a company concerned with its legal health in the cold litigation and regulatory climate of the United States in 2018, it’s too bad that the legal industry has only two words for professional talent:

“Lawyer”, and

“Non-lawyer”.

(And most lawyers aren’t all that excited about substantial delegation to anyone not bearing the title “lawyer” — more about that below.)

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It’s too bad because effective delivery of legal services to a client company requires more skill sets than lawyers’ limited, two-word vocabulary can describe:

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The law firm of Milbank, Tweed, Hadley & McCloy recently announced that it was raising the annual salaries of its first year associates to $190,000. Other large law firms are doing the same.

Instead of a business-like, matter-of-fact, decisive refusal to pay lawyer rates for the work of brand-new law graduates who are lawyers in name only — many clients who sign off on the legal bills of law firms participating in this $190,000 move … are feeling upset.

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So writes Caroline Spiezo in an article of the above title appearing last week in the journal Corporate Counsel:

“Corporate Counsel reached out to a number of in-house leaders following Milbank’s announcement to gauge their reactions. Many opted to remain anonymous, but all displayed strong feelings about this development. Here are their responses, some of which have been lightly edited for clarity and length.

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I’ve long admired the work of Jordan Furlong, a distinguished Canadian lawyer who analyzes and forecasts changes in the legal services market for law firms and legal organizations.

His twitter post yesterday:

“Most invoices from law firms aren’t really ‘bills’ — they’re lists of claims against the client made by any lawyer who could find a way to touch the client’s matter for at least six minutes.”

After offering legal services for two or three decades elsewhere in the world — the Big Four accounting firms (PwC — the former Pricewaterhousecoopers, Deloitte, EY — the former Ernst & Young, and KPMG) are now taking tangible steps to move into the U.S. legal industry.

Last Wednesday (June 6) Deloitte UK and the San Francisco-headquartered immigration law firm of Berry Appleman & Leiden LLP (BAL) announced an agreement that gives U.S. businesses market access to Deloitte Global’s immigration legal services worldwide — including the U.S. — while adhering to the traditional rules that have insulated U.S. law firms from Big Four competition.

This comes on the heels of PwC’s formation nine months ago of a new law firm called ILC Legal in Washington, D.C. — the first entry into the U.S. legal market by a Big Four firm (see here).

These initial moves by two of the Big Four could signal a tectonic shift in the competitive landscape for legal services in the U.S.

As prominent legal consultant Bruce MacEwan put it after PwC’s announcement last year:

“[The Big Four] have incredible resources in terms of capital, thousands of high-powered professionals, brand equity, and entrée into every Fortune 1000 board room ….

“If the Big Four want to come at Big Law, they can. And they will be pretty successful.”

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In my most recent blog I recounted an interview with BASF Corporation’s General Counsel, Matt Lepore.

In that interview Mr. Lepore described how he went about ditching the arbitrary taxi meter of hourly billing.

And he described how he secured lower costs and client-friendly incentives through alternative fee arrangements.

I invite your attention again to his words — and I emphasize something that Mr. Lepore slipped in at the end of his interview:

“Whether you are Fortune 100, or a small start-up, if you have a legal need that requires outside counsel expertise, and you have some budget assigned to your department, you can use alternative billing. Maybe you won’t define value the same way that BASF, Microsoft, or GSK would, but you certainly don’t need to value the services you need based purely on an attorney’s hourly rate. And, in my view, you will not be getting the most efficient work product if you do.”

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I’ve said many times that the legal industry’s business model is based on the sale of attorneys’ hours: The value of lawyers’ work depends on how much time they take to perform a task. This model benefits law firms’ economics but it’s bad for the client. It results in unnecessarily high charges, overstaffing, and incentives to inefficiency (see here, here, and here — among other posts).

The client company has zero price visibility until the work has already been finished.

And — despite much happy-talk about the “death of the billable hour” and “widespread” adoption of alternative fee arrangements [i.e., some arrangement other than the billable hour] — the billable hour is the legal industry’s standard for pricing its work (see here and here).

So … is it practical for a corporate client to ditch this wasteful practice? If so, what does that look like from the client’s perspective?

Zach Abramowitz of the law company Axiom met with Matt Lepore — BASF Corporation’s general counsel — to talk about this.

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Yes — but you need to know where to look for the innovation.

And it’s early days.

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My last post cited the numbers in two recent empirical studies to show that law firms are not innovating (with exceptions distinctly in the minority).

But that doesn’t mean that there is zero innovation in the legal industry.

The best treatment of this issue that I’ve seen came from Mark A. Cohen in an article he wrote for Forbes last year: “‘Legal Innovation’ Is Not An Oxymoron — It’s Farther Along Than You Think”:

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“On average, lawyers spend 60 per cent of their time drafting documents. If there is a tool that allows them to do that faster and better, then it is an obvious choice.”

Thomson Reuters / Catherine Bamford    

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Here’s another post about the promise of Legal Document Automation for both time savings and enhanced accuracy. This one in employment law.

This past Monday Ogletree Deakins — a U.S. law firm known for labor and employment law expertise — rolled out a new software tool for a different set of corporate legal needs: “DIY Arbitration Agreements“.

Their promise: “Generate your [employment arbitration] agreements in Under Five Minutes“.

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