Managing Legal

When I left the practice of law to accept a corporate client’s invitation to run a division, what I had to un-learn as a (then former) lawyer was even more important than the new skills I acquired as a general manager.  

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None of this is meant to criticize the legal profession. It’s meant to help business owners and executives to identify who’s good at doing what roles — and then assign duties accordingly.

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Early in my transition from lawyer in corporate practice to general manager I was supervising the closing on a large transaction. A combination of lawyers, my company’s commercial officers, and our customer’s finance people were busily reviewing a borrower’s most recent financials, finalizing lending documents, and arguing about whether or not all conditions precedent to final execution were in place.

Our chief operating officer — my new boss — motioned me out of the conference room.

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LawGeex — an Israel-based tech company whose artificial intelligence (AI)-based document review software automates the process of identifying risky provisions in contracts — has announced the results of a peer-reviewed study that compared artificial intelligence to human lawyers in the review of standard business contracts called non-disclosure agreements (NDAs).  

The LawGeex AI platform achieved 94% accuracy compared to an average of 85% among 20 human lawyers.

And timing? The human lawyers took an average of 92 minutes to review all 5 of the NDAs involved — and the AI platform took 26 seconds.

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Why is this important? Because the review and approval of low-value, high-volume, day-to-day business contracts is a core business task that historically has required manual review by qualified (human) lawyers. The typical Fortune 1000 corporation maintains 20,000 to 40,000 contracts at any given time. And 83% report dissatisfaction with their contract management processes.

As to the kind of contracts reviewed in the study — NDAs — they typically take one week or longer to get approved (an experience I often endured as an executive at GE and Whirlpool).

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[Publication 3/16/2018]

One practical consequence of the big gap between attorneys’ excellent formal schooling and the skills they need to do excellent work for clients:

Attorneys who graduated from law school 4 years ago or less typically lack the skills they need to serve the client independently — i.e., without “supervision”.

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Leading law practice consultant Jordan Furlong initiated a discussion in which he asked lawyers who’d begun their careers as law firm associates and who were now partners at law firms or held other responsible law practice roles in companies: “How many months and / or years did it take before you felt like a reasonably competent and confident lawyer?”

Two dozen lawyers went on record and named their firms / organizations:

“The lowest number of years offered was two, the most was ten, but the frequently cited median was five.”

“Only one person said they never felt unready for law practice; everyone else said, essentially, ‘It took me years to feel like I knew what I was doing.'”

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This certainly corresponds to my own experience in a large Wall Street firm — and with what I witnessed in a smaller firm on the West Coast after I was fully developed as a lawyer myself and saw others struggling.

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There’s not much in the way of practical how-to instruction for new attorneys. So there’s a big gap between their excellent formal schooling and the skills needed to do excellent work for clients.  

This gap poses two practical consequences:

1. Attorneys who graduated from law school less than 4 years ago typically lack the skills they need to serve the client independently — i.e., without “supervision”, and  
2. The presence of junior lawyers on legal teams usually means that the client company pays for what law firms themselves sometimes refer to as their “training”. 

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About this “gap”.

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In Part I of this two-part series I contended that the vast majority of law firms and in-house departments haven’t adopted Six Sigma, Toyota “Lean” protocols, or other process improvement standards because the legal industry’s cost-plus business model undercuts any incentive for operational efficiency.

Undercuts how?

Law firms and in-house departments “organize” their work by simply assigning bodies (of admittedly smart people) to tasks. 

So the adoption of systematic, measurable processes of the kind long since developed everywhere else in your company would reduce lawyer-bodies-assigned (and hours worked). That’s not what legal industry — its business model — is designed for. 

This Part II addresses a rare exception: The“Electronic Discovery Reference Model” — EDRM — a collaboration between lawyers, companies, technology providers and legal process outsourcers to create business process and technology standards for cheaper and more accurate “e-discovery”. 

“E-discovery” stands apart from most legal industry tasks. Because here the incentives favor — in fact they require — operational efficiency.

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The vast majority of law firms and in-house departments haven’t adopted Six Sigma, Toyota’s “Lean” protocols, or other process improvement standards.   

Why? Because the legal industry’s cost-plus business model undercuts any incentive for operational efficiency. The legal industry doesn’t structure its work into activities sequenced in a specific order to produce a service or product for the customer. 

Instead, both law firms and in-house departments assign bodies (of admittedly smart people) to tasks. They aren’t motivated to take process improvement seriously because their work flows aren’t sufficiently organized to be called a “process”.     

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Six Sigma at GE — Motivation Driven from the Top Down: 

As an executive at GE I saw firsthand how incentives for operational discipline drove Six Sigma adoption under Jack Welch.

More accurately, Jack Welch himself was motivated to drive those incentives down into the rest of the company.

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As I said in Part I, too many individual judges and bureaucrats indulge their own preconceived, subjective legal and regulatory views in ways that create bad surprises.

Your best protection?

The sound judgment of a lawyer who’s immersed in the views of those who call the legal and regulatory shots likely to impact your business.    

A couple of examples:

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EXAMPLE #1

Where an idiosyncratic court ruling might expose your business entity to liabilities that you expected to be protected against:

Form your business entity — corporation, LLC, etc. — under the laws of a state whose court system handles the relevant issues frequently — and that values predictability in its rules.

Example: Delaware.

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Despite our nation’s sacred aspiration to have a government “of laws, not men”, businesses often find themselves governed by the preconceived, subjective opinion of some judge or bureaucrat.

Even when that preconceived, subjective opinion conflicts with the plain meaning of a statute’s or regulation’s actual words.  

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The Dodd-Frank Act provides specified whistleblower rights to an employee who communicates a securities law violation “to the [Securities and Exchange] Commission”.

Two days ago (February 21, 2018) the U.S. Supreme Court held that this provision did not apply where the employee communicated a securities law violation to an internal company official — instead of the SEC. (Digital Realty Trust v. Somers).

No report to the SEC. No recovery under this statute. The proverbial no-brainer, right?

Why did it take the employer company four years of litigation — and appeals all the way to the U.S. Supreme Court — to confirm what a reasonably intelligent 6th grader would have understood from reading the text?

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Because our legal institutions indulge idiosyncrasies and whims on the part of judges and bureaucrats that frequently render the law’s demands unpredictable.

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Part III

For routine, repetitive, or high-volume legal or regulatory compliance tasks, ask yourself which service provider brings the the right business processes — and perhaps the right technology — to the need presented.

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Some of your company’s legal and regulatory needs call for a team and a process.

Not for a particular attorney.

And certainly not for an attorney who happens to be under-utilized or to have only partial aptitude for the task.

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Unlike general management, the legal industry doesn’t usually break down routine, repetitive, or high-volume tasks according to Six Sigma, the Toyota Production System, etc.

As a friend put it when we were both first year associates in a prestigious Wall Street law firm: “We’re in a cottage industry!”

He didn’t mean that our work was small beer. After all — each lawsuit and transaction had lots of zeros after the dollar sign.

Instead my friend meant that lawyers at our firm were essentially individual artisans, sitting at work benches making shoes by hand, etc. sitting at our desks, proof-reading trust indentures, researching case law, etc.

Most tasks handled by large law firms, by small law firms, and by in-house legal departments are made-to-order. Lawyers’ work is usually marked by intellectual rigor in the thinking behind it — but not by management rigor in its execution.

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