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Find the Greater Purpose to Succeed with Lean

Posted in Leadership

karateThe next time someone approaches you and suggests it is time to change, check your heartbeat. The simple mention of the word “change,” regardless of what follows, seems to evoke a reaction in each of us. Heart rates increase, breathing becomes faster and shallower, adrenaline starts pumping, and we get ready to fight or flee. The words following “change” could be something benign—such as,  yesterday’s paper to today’s paper in the reception area—or significant—such as, our basic business model. That simple word “change” affects us and colors everything that follows.

We have all perpetuated the story that lawyers are more change resistant than others. It makes sense, after all. Lawyers are trained to live in the past. Ask us a question and we want to dive into the books to find what the law says. What has happened in the past sets the guardrails for what we can do in the future. If the guardrails are missing in a few places, then we want to stay as close to the center of the road as possible for fear of transgressing some as yet undrawn line.

This belief that we are special, augmented with an extra dollop of change resistance, allows us to shut down attempts at change by merely pointing out who we are. We are lawyers, we recite, who are conservative by nature, trained to feed off precedent, and we are told by the more conservative members of our tribe that we should not take it upon ourselves to carve new areas of law (unless we sit in a legislative body).

The thing is, as they say, we just aren’t that special. Perhaps we do have a bit more change resistance than the average person, but change resistance is within all of us and it comes out whenever any of us (even the most change-loving) hear that trigger word. The key is in what happens next.

Lean and Change Resistance

Whenever we introduce Lean into a new environment, whether an industry, an organization, or even a department, change resistance appears. Since Lean started in manufacturing, most people assume it was met with mild to no resistance since it was a manufacturing thing. To the contrary, from veterans to newbies, manufacturers fought the ideas brought by Lean. Today, that resistance still appears whenever Lean is brought into a new setting. More significantly, even when Lean has been in the setting for a long time, perhaps years, we still see  active and passive resistance.

Move outside of manufacturing, and you continue to hear resistance to the changes Lean brings. Of course, the starting point is always the “we don’t make toasters” argument. Lean may be fine for manufacturing, but once you enter services the whole ball game changes. People are not machines so expecting them to act like and be measured like machines just won’t work (this sentiment tells a lot about the misconceptions of Lean, but I’ll hold off on that thought for a moment).

If we really want to hear the change-resistance arguments flow, we can move to professional services. Providing professional services is something that comes from the brain, not the hands, so trying to standardize how we think and have us respond to a takt time makes no sense. Clearly Lean is out of its element when it comes to Law, Medicine, and any other of the professions aimed at helping people.

Having heard resistance from people at all levels, in all industries, doing all manner of jobs, one could start thinking that the problem is Lean. Perhaps Lean just doesn’t work anywhere. But then, of course, there are the thousands of companies employing millions of people who have successfully introduced Lean and made a go of it with outstanding success. How do we dismiss all of them to decide that Lean doesn’t work? Perhaps we need another theory, and that theory is where Lean practitioners went for guidance on how to overcome change resistance.

If everyone initially opposes Lean, then the challenge may not be Lean, it may be how people respond to change. In fact, we can see that Lean is not singled out for change resistance, any form of change meets a somewhat hostile reception. It seems that Lean is not the trigger, change is the trigger, and that gives us a clue. If we can determine how to address change resistance, then it should work for Lean as well as other change ideas.

Overcoming Resistance

Change is change, so it doesn’t help to try and disguise change by saying you are keeping things the same. I remember my first exposure to civil law when I was a junior lawyer. Throughout law school, I had heard professors say, “of course, this is the common law everywhere in the United States except Louisiana, where they follow a hybrid of common law and civil law.” Since I had no expectation of practicing in Louisiana, that limitation was fine. But, sure enough, the first major lawsuits I worked on after graduating were in Louisiana, and it wasn’t long before I was trying to research state law claims.

As a newly trained common lawyer, I started by reading the cases. As I worked my way through them, I would go back a few years and then hit a case which noted that the civil law in Louisiana had been changed. I went to the statute, read the changes, and then read the comments which said “the changes in the statute do not change the law.” After a few hours of research, I had gone through this routine many times as I worked my way back until I got to the French version of the Louisiana civil law. Looking at several civil law claims, I found the same thing with each line of research. It seemed that no matter what the change to the wording of the statute, it did not change the law. “Of course it changed the law,” I would silently scream, “the wording is completely different!” I felt like the legislature was playing a game of hide-and-seek with the law. I did not buy the line that the law had stayed the same, even though the words used to express the law had changed.

The first step, then, is to acknowledge when you are changing something. The second step is to work through why you are making the change. If that sounds like a command-and-control statement (“we are making the change for you to follow”), then you already know the third step—don’t impose change, invite those who will be affected to help you create change. When the people affected helped drive the change, they are more likely to participate in its success.

So far, I have not said anything remarkable, but I have listed three guidelines mostly followed in the breach. There are other guidelines, such as clearly explaining the expectations and goals for the world after the change, listening and responding to concerns, and course correcting when necessary. But even when you follow all the guidelines, something disconcerting happens. In Lean, that means that the improvement journey stalls.

It Is Easy To Succeed—At First

Any Lean improvement journey should start out with successes. Going from a non-Lean world to a Lean world involves removing waste. Look at any system that hasn’t been through Lean improvement, and you will find waste wrapped around all the processes in the system. Even a poorly run Lean improvement program will pull out some waste, and everyone will feel good about the success. But after several of the improvement exercises, things begin to slow down. The teams are confused where to go and start questioning whether they have hit that point where there is no additional waste to remove, or at least the waste that remains can’t be removed. This is the infamous change fatigue plateau.

What seemed impossible, then became possible, then fun, and then tedious. Going back to the same well or even a new well for more improvements starts to seem like drudgery. Yes, perhaps we can take out some additional steps and trim a day off the lead time, but does it really matter? Over time, the frequency of improvement events drops off. The processes that were improved start to succumb to the overgrowth of waste creeping out from other processes. Wait a bit and everything will recede to where it was before the change. What was accomplished?

Change

Lean is not alone in hitting the change fatigue plateau. As I said at the outset, the key is in what happens next. Lean practitioners were sensitive to the plateau. It is hard to sign people on to a program if you and they know it will eventually die. We learned that for Lean to be sustainable, we needed to focus on kata.

Kata is a Japanese word that comes up most frequently in marital arts (in English, you will hear the word “form” used). A kata can be described as a series of specific steps, in a sequence, that the practitioner practices over and over again, seeking perfection. There are many kata for each type of martial art. If you have ever seen a movie with a martial arts class training, you will recognize kata. The class moves through a sequence of steps with each student performing the same step at the same time. Over and over again.

No, as Lean practitioners, we do not expect everyone to become proficient in karate. But we have borrowed the term kata to mean learning how to do become proficient in improvement so that it becomes second nature. By practicing and repeating improvement activities, the Lean thinker gets to the point where continuous improvement is one of their habits. Across an organization, as everyone moves to continuos improvement, the organization becomes extremely powerful because it is constantly engaged in improving. This continuous improvement is a sign that an organization has moved through Lean change to Lean thinking.

Kata Is Necessary, But Not Sufficient

It isn’t easy to do something over and over again. Martial arts students often drop away after a few years of practice. Practicing the kata requires a mental discipline and many students find they do not have the internal motivation to stick with the training. If you have children and they wanted to play a musical instrument, you probably have seen the same thing happen. At first, they have great enthusiasm (if they helped pick the instrument—see above about involving the person in the change process). They happily go to lessons and even put in some time practicing. Then they hit the fatigue plateau. They practice less frequently and start skipping lessons. Now, that instrument sits in its case in the basement, waiting for the next garage sale.

Kata is important, but we need something more to make Lean a real success. That something more is the commitment to a common goal and to the organization trying to achieve that goal. Put simply, it is a sense of purpose beyond accomplishing what needs to be done each day.

Many companies have tried to get to that sense of purpose by adopting mission statements or slogans. I live in Michigan, so here are some from companies that operate in Michigan:

  • “To passionately create innovation for our stakeholders at the intersection of chemistry, biology, and physics.”
  • “People working together as a lean, global enterprise to make people’s lives better through automotive and mobility leadership.”
  • “Imagination at Work.”

These statements attempt to convey what the company is all about externally, and to give employees a point to focus on as they go through each day. Sports teams do the same thing. Running drills every day is tough, but focusing on a bigger goal (winning the game, being the top ranked team at the end of the season) gives players something greater to focus on as individuals and as a team.

The team concept is important in organizations as well as in sports. If everyone has a common goal, a common purpose, then everyone is in the boat together. Employees have more reasons to work together to improve, because not doing so means they are letting down the team. Learning how to continuously improve becomes part of the competitive spirit of the organization as it works towards its goal.

Can Lawyers Find Purpose?

Lean, then, is like other changes. To succeed, the individuals and the organization must develop the kata of continuous improvement. It isn’t the individual improvement events that make the difference. It is the daily repetition of continuous improvement activities with each improvement building on the ones before that distinguishes the organization. To develop that kata, the organization must provide (with the help of its members) the purpose for going through the effort of continuous improvement. There must be a greater goal.

So far in the legal industry, we have lacked both purpose and kata. The focus has been on cost cutting, and that is never going to be sufficient (putting aside the misunderstanding of Lean). Many organizations in the legal industry are pushing Lean or jumping into it. We already are seeing some experiencing fatigue. The danger of failure is not just an organization laboring under waste. It is the danger of failing to transform. The legal industry must get past its present form and that requires leaders—individuals and organizations. To make it through that transformation, we need purpose. If you can’t articulate the common purpose of your organization, then you have more to worry about than becoming Lean.

Stop Pummeling Big Law, You Are Hurting Yourself

Posted in Leadership

BoxersThis is not a robust defense of the embattled millionaires running today’s large law firms. I am not going to throw myself between the partners of those firms and the many (and growing) ranks of in-house lawyers taking free shots at them for failing to convert the money machines of big law into egalitarian not-for-profit organizations aimed at helping the poor large corporations. I realize that many corporations are suffering under the crushing burden of legal fees that in some cases range up to (or even higher than) .60% of revenue. I recognize legal fees are the most significant problem of our time, but I’m going to ignore that issue and instead talk about why the slugfest isn’t good for any of us.

Round 1 – Heavyweights in the Ring

The College of Law Practice Management (COLPM) held a conference last week and, while I wasn’t there, I did follow the tweets of attendees. One tweet in particular caught my eye:

Screen Shot 2016-09-17 at 9.08.36 AM

Jordan provided a nice string of tweets repeating prognostications from the speakers, most of them filled with interesting if unsupported statistics (80% of legal services are basic or low touch, 20% of legal work is high-value bespoke, etc.). It seems, from reading the tweets of many attending the conference that the air was filled with specific numbers talking about the decline (the next 10 years seemed to be the favorite timetable) for lawyers. Estimates range, but about 50% of the profession will disappear during that period, from what I read.

The COLPM conference focuses on Big Law and Big Corporate Law (the in-house equivalent of the large law firms), so the speakers presumably meant that around 50% of what lawyers in large firms do will move off lawyers’ desks reducing the need for about 50% of lawyers. Some of the COLPM speakers who were throwing around those numbers also are leaders of the Corporate Legal Operations Consortium (CLOC). CLOC members focus on improving the operations of Big Corporate Law. None of the speakers were talking about the hundreds of millions of individuals who get little or no legal services.

Using the tweets as a proxy for the full text of the presentations is not a reliable way to gauge sentiment at the conference. But they suggest there is a lot of anger being directed towards Big Law. Clients have spoken and Big Law has not responded. So, borrowing the words of Jordan’s tweet, the large law firms are “being detoured around.”

Round 2 – A Draw

At one time, I was general counsel of a company owned by a large, well-known private equity firm. The chief financial officer was a hard-working very conscientious person whose goal was to run the company in the best interests of all constituents. For those who have worked at private equity portfolio companies, you know it can be a problem to focus on anyone except the managing directors of the private equity firm. It varies by firm, but many have the goal of making the most money in the shortest period of time, and taking no prisoners.

The CFO would come to my office (frequently) to complain that the CEO, with the permission of his fellow board members (all private equity firm managing directors) had decided to spend money on something the CFO opposed. The CFO was frustrated because he felt spending the money was not in the best interests of the other constituents (a jet to take the CEO to all the remote locations of the retail chain was a particular source of concern).

We would talk and I would explain that our company was something like the local doctor’s office. The doctor owned his practice and if he wanted to spend money on a fancy office, that was his business. His employees might want him to increase salaries or do other things, but since he owned the practice he could do what we wanted (within some obvious restrictions). So could the private equity firm.

Big Law is the same way. If the owners of the law firm—the equity partners—choose to follow a path that they think is in their interests but seems contrary to the interests of their constituents (and does not violate applicable restrictions), so be it. They own the firm and can do what they want. There is no law of nature that says law firms must exist or survive. In fact, there is no law of nature that says lawyers must exist or survive. We trip on this last one quite a bit.

There seems to be a strong feeling among many not in the firms that Big Law is violating some sacred trust by not changing to meet what others want. Of course, the firms have no obligation to make any such changes, even changes demanded by their clients. A large law firm is entitled to look a client in the eye and say that it will continue billing by the hour, increase its hourly rates whenever it pleases, and put as much time into a matter is it wants. In fact, for a long time one of the cherished benefits of being an equity partner was the freedom to do just that. You could run your practice as you saw fit and if your quality, cost, ethics, or anything else exceeded what your client wanted, then your client was free to find representation elsewhere.

Let’s play this out. Imagine the 200 largest law firms do not pivot to what some (certainly not all and maybe not even a majority) of clients say they want them to do. We have ourselves an old-fashioned standoff. Now what? Most assume some combination of the following: 1) new firms will rise up to provide what clients want, 2) alternative service providers will fill in, 3) in-house lawyers will take over the work, 4) some number of the large firms will cave and change, or 5) computers will take over. Imagine 1, 2, 3, and 5 come true, but that the 200 largest law firms hang tough. They don’t change. In fact, they are so obstinate that all 200 fail. Where does that put clients?

Clients presumably would not have any problems with that mass collapse. If they let the largest law firms fail, they had alternatives to those firms. They did not need the firms. The only ones “hurt” were the law firms. Life goes on. The lawyers who were foolish enough to stick with the large law firms to the bitter end may suffer and staffers may suffer as well. Or, they both could exit before the firm collapses. Businesses fold every day so the death of such firms should not come as a surprise or a source of concern.

Round 3 – Another Draw

According to surveys by one consulting firm, large corporations have pulled over $12 billion of work from large law firms over the past four years, with about $4 billion of that being pulled in the last year. The pace of decline for Big Law has quickened, point out the critics. They need to get with it.

Large law firms still are run by baby boomer lawyers who control large percentages of the client relationships. Strangely, it seems these lawyers are running the firms the way they want to not the way others want them to. The firm’s managing partner may get that things are changing, but the other partners show high resistance to change (and the resistance to change among partners seems to be increasing).

Clients point out that they are no longer standing idly by. If the firms don’t change, they will pull their work and bring it in house and the numbers show that some are following through on the threat. That means that when a law firm doesn’t respond, it risks losing work from clients. The point may seem obvious, but I want to make sure you read it given what I’m about to say.

I think clients, in-house lawyers in particular, need to stop beating on the lawyers in the large law firms. Give it up and let them be. As I noted at the beginning, I’m not protecting them. Rather, I think the verbal pugilists would be better off spending their time showing they really do want change and not just talking about it.

I regularly talk to general counsel who overspend on a daily basis. They aren’t pushing for change, don’t really seem to want change, and emphasize that they are not being pushed to change. Some of them run very, very large departments in very, very large corporations. Right now, they could cut legal service spending by 50% in a year, but they won’t. They will tinker around the edges enough to stay in the good graces of the management team. But they won’t do the obvious things to get spending down. I suspect there are quite a few of these general counsel. While a spending drop of $12 billion over four years is worth noting, it is small compared to what we would see if Big Corporate Law was serious about change.

More interesting are some of the loudest voices in the call for change. They, too, are not really into cutting their legal spending. They are into making a lot of noise and getting lots of visibility, but not into really cutting legal services costs. This is the dark secret that isn’t so dark or secret in the profession. There is a line between saying you want to cut costs and actually doing so, and virtually everyone stays on the side of talk and does not wander into serious action. Let’s face it folks, if you want to cut your legal services spend it is not hard to get it down to a small percentage of what you spend today (as in well under 50%) within a year or two. And that just gets you the low hanging fruit.

Now Let’s Stop the Fight

I get frustrated listening to all the Sturm und Drang. Real change does not happen by getting in the ring and pounding on someone. At the end of the fight, both fighters are worn out and everyone else walks away. One fighter bested the other, but neither changed the world around them. Real change happens outside the ring.

The range of issues that lawyers could attack is enormous. Many of them have direct impact on their existing corporate clients. There are services lawyers (in-house and outside) could provide clients that would add value. Lawyers could help clients steer through murky and turbulent waters. World governance structures are changing quickly, technologies are emerging and evolving every day, societal concerns are shifting presenting new opportunities and risks for clients, and lawyers are ignoring all of this in favor of fighting in the ring over inanities.

Killing off a profession isn’t easy, but it also isn’t hard. Big Corporate Law can throw stones and complain, all the time not really addressing what their clients need and skirting around real reform. They can duck and jab, making sure they don’t pull enough work way to truly weaken Big Law but at the same time showing their bosses they are serious.

By continuing on this route, they ensure that 10 years from now, fewer people will care about the aging legal profession because it will have less to offer people. Big Corporate Law lawyers forget that they too are expendable. Whatever services they pull from outside lawyers can also be pulled from in-house lawyers. As inefficient as outside lawyers may be, in-house lawyers are just as inefficient. The over-hiring of today’s corporate law departments will eventually result in downsizing, because cheaper labor does not replace working smarter. Big Corporate Law is following an old playbook used by their colleagues in other departments and a little investigation will show that it is, at best, a short term trick.

Apparently, the folks at COLPM did not talk about the few corporations who have skipped the urge to add in-house lawyers and are exploring the next evolution in legal service thinking. There are some who are looking at ways to replace outside and in-house labor using process improvement and technology. Their goal is to dramatically reduce the number of lawyers outside and in-house handling routine legal work. Instead, they will use lawyers to tackle the challenges I talked about and new challenges on their way—substantive and meaningful challenges. These lawyers will divert what one speaker called the 80% of low touch, basic legal work away from in-house lawyers as well as outside lawyers, not in-house legal work to reduce labor rates. None of these lawyers were the ones who took shots at Big Law during COLPM.

I agree with the sentiment in Jordan Furlong’s tweet. I think, and have been saying for years now, that clients are simply going around lawyers. The big issues of our time are being faced down by groups that don’t include lawyers. Clients are not seeking lawyers for strategic thinking (the exceptions are very few), and clients are tired of the in-fighting over things like billable minutes and who doesn’t trust whom.

Big Law is tough enough to take the punches and it doesn’t need me to defend it. But if you are one of those doing the punching, ask yourself this: is your time better spent punching or working with academics, entrepreneurs, venture capitalists, and practicing lawyers (even those in Big Law) to find ways to meaningfully change the profession? That includes reducing the number of lawyers in law departments focusing on that routine work. But it also means finding new ways that lawyers contribute to solving the pressing problems clients face and in the end, that is where lawyers want to be anyway. If you think punching away is best, then knock yourself out. If you think change is better, then contact me—we should talk.

Is Value Over-Hyped in the Legal Industry?

Posted in Efficiency

ValueWhen you read hype, it sounds like something is about to take over the world. Read an article on artificial intelligence in the law and you can be sure that the offices next to you are now occupied by robo-lawyers. In another article, you learn about blockchain technology. By the time you are done reading, you fear that if you haven’t mastered blockchain by the end of the day, your legal career is over. The art of hype has taken to new levels the ability to scare the bejeezus out of those being hyped.

Unfortunately, hype has a dark side that we all experience. If you do think there is something to artificial intelligence, blockchains, or any other development, hype is sure to set expectations so high that reality cannot reasonably reach them.  When those scared into learning more dig into the facts they find that the real world pales in comparison. Over-hype a good thing and you can send something down the path to obscurity before it reaches its potential. Value fees almost became one of those victims.

Value Should Be at the Heart of What We Do

Value fees (alternative fees, appropriate fees, etc.) came close to never reaching its potential. Apart from the head of finance at a major law firm, it is hard to find anyone who really likes the billable hour. Everyone knows its evils, but few sing its virtues (we all know there is a reason for that, but some valiantly try to squeeze out a few notes). Value fees were hyped far ahead of their time.

The idea of value fees was and is great. It is hard to argue with the basic proposition that the client should pay what it thinks the service is worth and the service provider should receive what it thinks the service is worth. But you may also think, it sounds like there will be a gap. The service provider will go high, the client go low, and they won’t be able to agree on a price.

Ponder this false dilemma a bit more, and you can see what will happen. The service provider will bring down its price. If the client doesn’t come up, the service provider will learn its prices are too high. If the client does come up, the service provider and client can find a point where the value exchange equalizes and they engage in the transaction.

Value fees adjust for risk apportionment. They also adjust for cost, context, point in time, and a myriad of other factors. Value fees are a way of adjusting more than just the pricing, they can adjust the entire value chain for the transaction, and that is far more efficient than having a pricing system based on a measure insensitive to the concerns I listed above (I’m looking at you, billable hour).

What is Value?

We have just hit the point where many lawyers—law firm and client—drop out of the value fee discussion. These fees require something that has been bred out of most lawyers, and that is the ability to understand how they provide services. Without the knowledge of how services are provided, lawyers find it almost impossible to make value fees work consistently. They see this as value fees being over-hyped and stop using them.

To understand this cycle, we need to explore the concept of value fees more deeply. First, we need to get past the stumbling block for all lawyers. Say “value fee” and the first question you get is “how do we determine the value.” A simple answer usually is best, especially when it is accurate: the “value” of a service at a point in time is whatever the client and service provider can agree on as a price. Second, we must recognize that the billable hour has nothing to do with value. It is a measure of inefficiency—the greater the invoice the more inefficient the process (though not necessarily the service provider).

Most people get, even if they struggle with, the part about the value being what the client and service provider agree upon. They have experience with these types of transactions. When you buy a car, a house, a pair of shoes, or a dinner at a restaurant, the value of whatever you buy is what you are willing to pay the other party.

The other part of the definition—at a point in time— throws many lawyers. The value of the exact same service can vary from time to time. In fact, lawyers also are familiar with this phenomena even though most don’t know it.

Want to buy a book from a well-known online retailer? You go on its site and check out the book, but you can’t make up your mind. The book costs $19.95 and you aren’t sure you want to pay that much for it. A few hours later, you are surfing the web when an ad from that same retailer pops up on a site you are visiting. The ad features the book you wanted, except the price is $18.95. You think “wow, a deal” click on the ad and buy the book.

The retailer’s service is selling you the book, but the retailer couldn’t close the deal at $19.95. The retailer was at $19.95 as its value point, but you were at something less. Based on experience selling millions of books, the retailer decided that dropping the price by one dollar would do the trick. So, it offered the same service at a lower value, $18.95. You agreed, and the transaction went through.

What you did not know, is that when you were buying the book for $18.95, the retailer was selling another copy for $19.95 and another for $19.25. Each time, the service was the same—selling a book and delivering it to the customer (assume that cost of delivery was the same in each instance). But, three different values were placed on the transaction, based on what the service provider was willing to accept and the customer was willing to pay. There wasn’t a “right” value for the service.

A ride-sharing service has become famous (or infamous) for understanding that value varies based on context. Hail a ride on a warm sunny day, and you will be charged $X for that two mile ride. Hail a ride from the exact same location on a day when it is cold and rainy, and the cost will be $X+Y for the same trip. Demand for rides has increased so what you the customer are willing to pay has increased, because the ride has greater value to you (staying out of the cold rain versus staying out of the warm sun).

There isn’t one “value” for a service. There are many values, each dependent on many factors. But if trying to find a value to charge (or pay) for a service is difficult, then how can the parties choose among the many values? A large part of the answer lies in that area lawyers don’t understand—how they provide their services.

If You Don’t Know Cost, You Don’t Know Value

When you don’t understand how you provide your services, you don’t understand your cost structure, and without understanding your cost structure setting a value for your service is the same as being left in the middle of a golf course with a blindfold on and being told to find the golf ball. There is a chance it will happen, but the probability is low.

From the service provider’s side, knowing what you will accept as payment for a service starts with knowing the cost of providing the service. Once you know that cost, other factors come into play that will help you set the value. Assume you know the cost of your services is $20,000 (put aside for the moment how you know that). If you accept $20,000, then you don’t lose or make any money. Now, you can adjust up or down what you will accept for the service, based on other factors.

If the client is a new one who could spend hundreds of thousands of dollars at your firm, you may decide to accept less than $20,000 for the service. If the client is problematic and the risk of payment is high, you may decide to charge $30,000 for the service (keeping in mind, of course, professional responsibility requirements). The $30,000 isn’t an arbitrary value, it includes a profit margin and an amount to cover the risk of non-payment. In each case, the client may agree to your value amount, or disagree and decide to negotiate, or simply go elsewhere. The better you understand your services and the market, the less likely you are to lose the sale.

Now we need to circle back and examine how you knew the cost of your services. Trained in the billable hour, most lawyers assume you determine cost by multiplying the number of hours it will take to provide the service by the cost of each service provider. If it takes the partner 10 hours, and his cost per hour is $250 (even though his billable hour rate is $500), then his cost is $2,500. Do that same step for each service provider, add them up, and you have the cost of the service. Not really.

Every day, each lawyer does things at work that fall into one of four categories: value added, necessary but not value-added, unnecessary and not value-added, and other. We can dispense with “other” quickly. It includes all the things that fill up the day but have nothing directly to do with providing services to clients. Getting coffee, talking to your friends, surfing the web, and so on. Forget about those things.

The other three categories are the ones to focus on. When you say that it costs the firm $250 per hour for that partner, you really mean that it costs $250 for one hour of time spent on some combination of value added, necessary waste, and unnecessary waste. Necessary waste includes those things you must do, but which do not add value. Unnecessary waste includes those things which do not add value and which we can eliminate. Law firms typically do not break time out into those three categories, so they don’t really know the cost of the services they provide. In hour one, the lawyer might provide 45 minutes of value added services, 10 minutes of necessary waste, and 5 minutes of unnecessary waste. But in hour two, it might be 45 minutes of unnecessary waste, 10 minutes of value, and 5 minutes of necessary waste.

We can go back to that partner who spent 10 hours to perform his service. The real question is how many of the 10 hours were wasted? Let’s assume this partner is more efficient than the average lawyer and wastes only 50% of his time. That means that out of the 10 hours, 5 hours were value added and the other 5 hours were waste. Remember there are two types of waste, so one of the 5 hours was waste, but we would not have been able to prevent the waste. The remaining 4 hours of waste truly was waste—it should have been eliminated.

From the firm’s perspective, it cost 5 hours value added work by the partner (at $250 per hour) to provide the service, another 1 hour (again at $250 per hour) to provide waste that they couldn’t remove, and 4 hours (also at $250 per hour) to provide pure waste. What should have cost the firm $1,500 to perform (6 x $250) cost the firm $2,500 to perform. This is what I mean by knowing your cost.

When a market has minimal competition (the good old days in the legal industry), spending too much time to perform a service didn’t hurt a firm. It simply passed the excess cost on to the client. In a competitive market, paying more than necessary to perform a service decreases the potential revenue and profit for a firm. Other firms will reduce their cost, lower their prices, and win the client.

This is where process connects with value fees. The firm that controls its costs—not just the billable hours spent, its true costs—has more flexibility on pricing. It can even reduce prices and make more money than a competitor who doesn’t have control of its costs. The firm controlling its costs can use value fees as a competitive weapon while at the same time giving clients predictable pricing.

Flexibility in pricing is not the same as strategy, though without flexibility you are limited in strategy. Flexibility means you can drop your price below your cost, price at your cost, price over your cost, or charge a premium price, all depending on your pricing strategy. You also can vary pricing depending on the context. In other words, you now control the profitability of your organization. Clients always set the price, but by aggressively reducing costs you can increase your organization’s profitability even when revenue drops.

Conclusion

Lawyers shy away from value fees, claiming they are too complex, require too much work, or that they simply don’t work. Value fees are more complex than billing by the hour and they do require more work. Value fees are for firms that respect their clients and trust them. They are for sophisticated firms that understand pricing legal services should not be an exercise in demonstrating your firm’s inefficiency. They also are for lawyers who believe they should get paid a fair price for what they deliver to clients. For clients, value fees are a better, more nuanced way of making sure they pay for the value they receive, reward superlative service, and recognize when there has been a service shortcoming. For all lawyers, value fees get us off the belief that working 24 hours a day is a good thing.

Don’t Cede Our Future to Technologists

Posted in Leadership

Cede2There is a movement underway with the goal of deciding the future of law. Technologists call it deciding the metes and bounds of what artificial intelligence and robots may do. The question is not what they can do, but what humans will allow them to do. Right now, technologists have appointed themselves the leaders of this movement hoping they can pre-empt others from taking over regulation of this quickly evolving world. This is bad for all of us, technologists included. Lawyers should not cede the future of the hybrid human-computer society to technologists.

What Limits Should We Place on A.I.?

As technology evolves, a question keeps coming up: what should be the limits of where humans take technology? This is not a new question nor is it limited to one type of technology. It is not the only question asked, but as technologies evolve it has become the most important question. One evolving technology, artificial intelligence (A.I.) stands apart from the others, because unlike the others it has the potential to become self-determinative. When we talk about artificial intelligence, the question may be more than where will humans take technology, it may be where will artificial intelligence take itself.

Self-determinative does not mean what many have come to believe about the potential of A.I. through hype and Hollywood. Evil A.I., though dramatic, is less likely than literal A.I. A software program does not have to embody an evil personality type to do egregious harm. Software is literal. One example often used is the paperclip making program. Left unchecked, the program could search for ways to continue making paperclips, which could mean using everything it can find or convert to making paperclips, even though there no longer is any need for paperclips. At its extreme, the program could subvert everything to its central goal of paperclip making, without any intent to do evil or good.

When compared to other technologies of the present and past, A.I. is unique. It alone has the potential to chart its own course. Nanotechnology can do great good or evil, but which it will determine for itself which path to follow. Nanotechnology may evolve along unintended lines and may continue evolving in the absence of some external force limiting it, but will do so without the self-determinative quality of A.I. The same is true with gene editing (such as through CRISPR-Cas9) and 3D printing.

Concern about the risks emerging technologies present to humans, A.I. in particular, has led many technologists to look for prophylactic measures to limit the risks. When there is work to be done, committees must be formed. As lawyers know, whenever there is a committee the next question is “who should be on the committee?”

Scholars have put extensive effort into studying the operation, success and, relevant here, composition of committees, yet most committees are formed without a glance at the research. This should not be surprising because those who do things (including scholars) seldom stop to glance at what scholars say they should do.

The committees formed to set the metes and bounds for A.I. have structured themselves along predictable, though concern raising, lines. The committees include technologists, some philosophers or ethicists, and occasionally sociologists or other social scientists. The technologists hope that they can self-regulate the future of A.I. development and avoid the pratfalls that accompany government or some other form of external regulation. As with most domains (including law) the belief is that those who know the domain best should be the ones to regulate the domain. History has taught us that his is seldom so (again, including law).

Technologists Take Control

On September 1, The New York Times ran an article titled, “How Tech Giants Are Devising Real Ethics for Artificial Intelligence.” Five of the largest tech companies are putting together a group that will create a standard of ethics focused on artificial intelligence. The group’s goal is to self-regulate the industry before the government steps in and does the regulation for them. At this point, they have the organizers, but have not chosen a name or individual members for the organization.

The group’s goal is highlighted by a report issued by the AI100 Standing Committee and Study Panel that discusses the “likely influences of AI in a typical North American city by the year 2030.” The Committee comes out of the One Hundred Year Study on Artificial Intelligence, which is a “long-term investigation of the field of Artificial Intelligence … and its influences on people, their communities, and society.”

A few days before, Berkeley News, published by the University of California at Berkeley, had announced that Stuart Russell would lead a new Center for Human-Compatible Artificial Intelligence. The initial investigators include, in addition to Russell who is a professor of electrical engineering and computer science, other computer scientists, a cognitive scientists, and A.I. experts. According to the News, Russell expects the center “to add collaborators with related expertise in economics, philosophy and other social sciences.”

The Center will teach A.I. to mimic human ethics by having the software observe human behavior. This effort addresses problems such as the “Keep Off The Grass” sign. Read literally, even the groundskeepers can’t go on the grass. But, read with the value system humans use, it has a more reasonable meaning.

Missing among the committee members are those who have the most familiarity with governance systems, the lawyers. The Stanford Study Panel does include University of Washington law professor Ryan Calo, but it seems he is the exception that proves the rule. The presumption exists that technologists know how to create the algorithms and code that A.I. systems use, philosophers and ethicists know the moral quandaries of the human condition, and social scientists know the dynamics of small and large organizations, so all bases are covered. Somewhere, somehow, this group will determine how to create governance systems that will work at least as effectively as the legal systems that we have used for thousands of years. To me, this faith in the group to bridge the gap from their domains to law is misguided.

Lawyers Show Their Fear of Technology

Lawyers have a strange relationship with technology. The majority understand very little about technology, even the technology that sits on their desk. We know  that most lawyers can’t use the basic tools of the trade well. Word is a mystery, Adobe Acrobat even more so, and Excel something only understood when used as a word to describe their academic performance pre-law rather than as a number crunching tool.

When we go outside those age-old lawyer tools, technology becomes the black box. Whether A.I., robotics, blockchain, or any other emerging technology, lawyers cringe when presented with anything beyond the quill and parchment.  Their interest is limited to whether it will take away some of their job (the answer is yes, but not as soon as they fear or the hype tells them). How the technology works, its real potential, what is real and what is hype, are enigmas.

Though many lawyers like a good novel, they don’t like real-life mysteries. Things that are mysterious highlight that lawyers do not know everything, and lawyers do not like being in a position of weakness. Lawyers like to argue from a position of strength. Since they know little about technology, it is not a strength and they shy away from it.

There are, of course, some other explanations. Computers bring up painful memories of math, an area where there were right and wrong answers, not literature or the social sciences where persuasion rules. For many lawyers, the whole technology thing is boring. Never were interested in it, never will be.

Finally, there is the whole ripeness argument. Lawyers have been trained to hold back, let things develop, and wait until the disaster happens to jump in and try to fix things. In fact, so strong is the urge to wait until after the fact that lawyers have developed the “ripeness” doctrine. Better (and more lucrative) to solve the problem than prevent the problem. Let’s wait until A.I. is conquering the world rather than try to prevent the takeover.

Law is Not Simple Code

With A.I. on the upswing, it is commendable that many thoughtful people are asking what society should do to build some protective walls around our future. Humans don’t have a great history of considering the consequences of our actions. We prefer to let technology take its course and then ask, as the cliff looms ahead, whether it is time to change direction.

It is time for academics and practicing lawyers to step in and provide guidance  to the technologists on building a governance system. To start, we must educate those outside the legal domain about how legal processes, substantive and operational, work.

There is a belief among some (fear among lawyers) that law, regardless of its source, can simply be converted into computer code. This stems from the belief in a formalist legal system. In such a system, law is a set of principles and rules. Lawyers discover the facts, apply the principles and rules, and the algorithm of law delivers a solution. A recent biography of Richard Posner makes the point that common law does not function in this formalist way (William Domnarski quoting Richard Posner from his essay “Killing or Wounding to Protect a Property Interest,” 13 Journal of Law and Economics 201, 208 (1971).

Those saying to restate the common law in code form had a ‘propensity to compartmentalize questions and then consider each compartment in isolation from the others; a tendency to dissolve hard questions in rhetoric (for example about the transcendent value of human life); and, related to the last, a reluctance to look closely at the practical objects that a body of law is intended to achieve. Indeed, the preoccupation with completeness, conciseness, and exact verbal expression natural to codification would inevitably displace consideration of fundamental issues and obscure the flexibility and practicality that characterize the common law method.’

Law, despite the belief of many lay people, is anything but formalist. As legal realists (and pragmatists, such as Posner) explain, law involves the application of society’s values, common sense, equity, and bias to the particulars of the case, and then resolved within a set of constraints (e.g., statutes, regulations, court decisions). Attempting to code without appreciating how our governance system has evolved is attempting to backtrack to the rational person, when today we know people behave irrationally (even if predictably).

If you think I am overstating where technologists stand, then consider this effort by some of them. “MIT wants humans’ input on who self-driving cars should kill” reads the title of a recent article published by Quartz. This is the modern version of the age-old philosophy trolley question. When faced with two choices—go left and kill someone, go right and kill someone else—which is the moral choice? MIT’s Media Lab has an online test called the Moral Machine (you can take the test here). The philosophy problem is tough, but not really changed by the technology swap (autonomous vehicle for trolley). The difference, of course, is that in one version there is a trolley driver and in the other there is a computer driver. Either way, what constitutes “kill” is a complex problem, one preferably not solved by coding a popular vote.

The rule of law may not have prevented or solved all disputes, but we do have a vast storehouse of data (poorly accessible, but still there) about how to build and operate governance systems. If may take a village to raise a child, but it takes an ecosystem of domain experts to build workable governance systems.

Governance Needs a Broad Perspective

Lawyers, technologists, ethicists, social scientists and others should work together to develop the governance structure—computer code and legal code—that will regulate the new hybrid society. That structure also will be hybrid—part analogue, part digital. Some restrictions on what A.I. can do will be built into the computer code itself. What form it will take and the best way to accomplish this is something technologists know better than lawyers. But what those restrictions should be is something for broader discussion.

While the effort at Berkeley to teach computers human ethics by having them watch humans is interesting, it is hard to see how it will capture the interaction of complex ethics systems blending in modern culture, at least anytime soon. In the meantime, technology advances many computers at a time.

Similarly, some restrictions will be built into analogue code—the types of laws humans use to govern themselves. How to write those laws is something lawyers know better than technologists, but what those restrictions should be also is something for broader discussion.

Many lawyers, believe a “wait-and-see” attitude rather than a prophylactic approach is better. When issues arise we regulate those issues. This has been the legislative history for many of our recent muck-ups. When the harm has happened we look back (hastily) and write new laws that are intended to prevent the harm from happening again. With rogue A.I., the odds of a second chance are slim.

A.I. brings a different type of threat than financial upheaval. Once computer code is embedded in billions of devices, interconnected around the world, and with many devices able to evolve code without human intervention, the threat to governance changes in degree and magnitude. Even a benign computer intent on achieving its goal of making paperclips will be hard to dislodge from its goal once it has infected the world’s devices. A.I. does not accept do-overs.

By working with technologists in companies (where many are embedding technology not well understood or protected into everyday devices), in academia, and in government, and social scientists, lawyers can create a much stronger and more workable governance system. Lawyers also can help integrate that system with the existing, complex governance system in the United States and coordinate it with governance systems in other countries (something that must happen for any A.I. system to be effective).

Lawyers must continuously step up to the problems that need solving, not simply wait for society to bring the lucrative problems to their doorstep. A.I. and other technologies will play significant roles in our future and lawyers must thrust themselves into the discussions. The past excuses, largely dependent on lawyers being ignorant of science, math, and technology, are not sufficient (though they were accurate). Lawyers who don’t feel comfortable addressing client problems in these areas are implicitly leaving the future of governance—and lawyering—to technologists.

On Economics, Lawyers, and Lean Thinking

Posted in Leadership

Delegate

 

The legal profession is a closed system which leads to some, ahem, weird economic ideas played out in real life. I am not an economist, so I write this essay with apologies to those of you who are members of that distinguished tribe. I am sure there is a rational economic explanation for what I am about to describe. But, since I am adverse to digging back through my economic textbooks to search for one, I’m going to wing it (lawyer dilettantism at work).

In an unregulated market, tightening demand should have an impact on supply at some point. I remember that from what they taught me in economics and I’m going to assume that in the past almost 40 years we still believe that. Of course, the legal market is regulated (sort of). We see supply continue to increase as demand from clients shrinks or disappears. Demand and supply in the legal industry are not tightly linked, apparently.

Now if supply remains constant or rises, but demand shrinks, then prices should fall at some point, right? If there is more of what you want to buy than what you need to satisfy your desires, the supply side starts competing for your business and that means prices drop. Or, in the case of law firms, prices rise. Again, it seems the legal industry is different.

There is another anomaly we should cover that you do not hear about as much. This is the story of the supply of labor from those who bear the title “non-lawyer.” In my past life, we had titles for these folks. We called them legal assistants, paralegals, administrative assistants, clerks, and so on. There are others who fall into that general category of “non-lawyer” (and here I will exclude astronauts, doctors, engineers, actors, and a host of other professions not permitted to use the title “lawyer”). These others include project managers, pricing specialists, process improvement experts, legal data scientists, and so on. For the rest of this essay, I was going to throw all of these folks into the same pot under the label “non-lawyer,” but since that would confuse them with the more than 300 million people in the United States who do not have a law degree, I will instead use the term “talented professionals.”

Talented Professionals Should Get More Work

The  talented professionals are the unsung victims of the legal industry transformation. These are the people who really get whacked when law schools, law departments, and law firms want to “right-size” to meet the changing legal services industry demands. For those who like metaphors, this means that when you are in the legal industry and a storm threatens to destroy the tops of your trees, cut off the lowest branches to protect the tree. This may seem like an odd approach, but as I said at the outset, law is a bit weird when it comes to economics.

The logic within the legal industry seems to be the following: the best way to respond to cost pressures is to flow work uphill to the most expensive people in your organization. In a law school, those people are called faculty, in a legal department they are called lawyers, and in a law firm they are called partners. By flowing the work to these most highly-skilled and paid individuals, you eliminate the need for the talented professionals (the lower tree branches in the metaphor).

For those who did not get the memo, this is how lawyers trim the workforce that makes up organization tree. First, they look to technology. Word processing centers, travel groups, filling out expense reports, and many, many other tasks are ones that you assign up the ladder by implementing a plethora of software packages for the most expensive labor to use. Technology gives them the power to do what those talented professionals used to do. Use package A to make your travel arrangements, package B to do your expense reports, and this combination of packages to do your documents (including filing them).

When technology isn’t available, you can always rely on very expensive labor. You do that by simply telling lawyers they now must do tasks A through Z themselves, for the good of the organization. Need copies? No problem, go across the hall, down the aisle, through three doorways, turn left, and you are at the copy room. As soon as the four people in front of you are done jamming and unjamming the photocopier, you will have a turn. On your way, book a conference room and go online to see if your package was delivered.

I think the cost savings here are obvious, but I’ll point them out. The schools, departments, and firms allow the talented professionals to “pursue other career opportunities.” The change in staffing ratio looks on the surface like it results in immediate cost savings, because those organizations aren’t paying salaries and benefits to the professionals let go. I assume there is a cost to having the most highly paid individuals in an organization take over the responsibilities, but as I said I’m not an economist so I’m probably missing a loophole. Let’s not get caught in trivia and focus on the big picture.

Delegate, and then Delegate Some More

As those of you who regularly read SeytLines know, in addition to my background as a lawyer (my past life) I have an extensive background in lean thinking and I am a fan of using the right technology for the right purpose. I am now going to explain how a lean thinker and efficient technologist would look at the whole legal industry cost, supply, demand situation. I apologize to those who run law schools, law departments, and law firms, as aI know the approach I describe will seem strange.

We will start with a lean thinking favorite: waste. One of the eight categories of waste in lean thinking is underuse of skills. Lawyers can make photocopies, but lawyers have a wee bit more training than is needed to make photocopies. As a general rule, each time a lawyer makes photocopies we are underutilizing his or her skills, and that means waste. Lawyers also are a bit overtrained to handle travel arrangements and do expense reports. When it comes to project management and process improvement, lawyers are under-trained but over priced.

To reduce this waste (and this isn’t the only reason), lean thinkers would focus first on processes and get waste out. As part of getting waste out, they will push jobs to the skill level which best matches the requirements of the job. We recognize that people are happiest when they do jobs that match their skill level. They may aspire to having greater skills and more interesting jobs, and that is fine. But, if we use highly-skilled employees to do low-skilled work, we are wasting a lot of resources and the highly-skilled employees become dissatisfied.

I’m going to pause a moment here to let the heart rates of deans, general counsel, and managing partners settle down. Breathe slowly and read it again: a lean thinker would take work away from lawyers and give it to talented professions. Doing otherwise screws up the organization leading to bottlenecks, delays, poor work allocation, overwork, underwork, reduced quality, reduced creativity, higher costs, higher turnover, lower job satisfaction, lower morale, and a few other negatives—all things you already knew. Most large corporations have HR professionals who watch for and intervene when they see this “up the chain” delegation of work. In the legal industry, we give the leaders awards.

In our legal industry scenario, rather than pushing lower skilled work higher, a lean thinker would find ways to push as much work as possible down the chain. Doing so would mean having the talented professionals take whatever they could handle off the desks of lawyers. In the end, lawyers would give up work rather than take on tasks from the talented professionals.

Those who are relieved of work others can do less expensively, with higher quality, and at their skill level, find they have more time to do what their skill level allows them to do. They have more time for creativity and innovation. The result: both the person and the person’s customer (client) are happier.

When I ran a large manufacturing facility, we always looked for ways to push work down to the proper level. Why have highly paid engineers doing work that supervisors could do? Why have supervisors do team lead work? Why have team leads doing work that line workers could do? If pushing work down overloaded those on the lower rungs, we had options.

One option was to automate the work. First, of course, we would study processes and take out waste. Unless you have a strong continuous improvement program, the phrase “I’m overworked” is a great signal that you need to do more process improvement. Once work is at the lower rungs it is easier to automate. If we couldn’t automate it and needed more people, we hired the lowest cost individuals. By the way, in this discussion when I say automate I do not mean having your best trained most expensive labor use computers. I mean having the lower cost workers do routine tasks with software.

If we didn’t have a situation where those lower cost people could improve their skills and move up the ladder, you might have a concern. But we did, which meant that people could move into jobs that better matched where they wanted to be and wouldn’t be stuck at the lowest rung.

I have covered a lot of ground, so let me sum up. Under the approach favored in the legal system, those who have the most training, cost the most, and can offer clients creativity and innovation get the most lower level work pushed up to them. Law professors, who could be creating and innovating in the law and the classroom, end up doing lots of administrative work. Law department lawyers do the same—they could be helping their clients through creativity and innovation, but instead they keep the photocopier running. Law firm partners pick up the work of associates (and administrative teams), because the more billable work they can charge out the better, even if they are tremendously overqualified. Clients do not get the benefit of the creativity and innovation of the partners, they get the benefit of the hours billed.

Under the lean thinking approach, cost is reduced because we keep pushing work down to the labor cost level, and then out to low cost automation. The individuals in the labor chain are happier because they are not overloaded with work, and in particular work well below their skill level. They spend more time using their skills, knowledge, and experience, which makes them happier. At each step in the labor chain, the customer of the person doing the work is happier, because they get the creative and innovative input of that person.

The Perverse Incentives of Legal Service Organizations

As I said, I am not an economist. I am sure there is a reason why high cost, overwork, and low satisfaction is better than low cost, acceptable work level, and high satisfaction. I realize that thinking lean requires a group of people at all levels to sit down in a room, work through current processes, and find better ways to do them. That collaborative approach strikes at the heart of an autonomous system where lawyers hide behind closed doors while talented professionals (in shrinking numbers) work in the cubicles. Having written this essay, I have concluded I have no choice but to go back and thumb through the economic textbooks to find the answer.

Before I go, however, I have one more thought. On the slight chance that the lean thinking approach is better than the legal industry approach, then what the heck is going on? Law schools should want to reduce costs, law departments should want to reduce costs, and law firms should want to reduce costs. All three environments should want to make employees happy, so why aren’t they?

Perhaps this is the answer. Law schools cannot fire tenured faculty, but they can fire everyone else. If you want to cut costs, push the work up and fire who you can. Law firms are run by partners, and while you can “fire” them it is difficult. It is much easier to fire lower level employees while bulking up at the top. Law departments are staffed and run by former law firm employees. They have learned how the system works at law schools and law firms: protect the top and lop off the bottom.

I see how it works. But, as a lean thinker, I still keep wondering if it wouldn’t be better to reduce costs, keep the work manageable, and make everyone happy. Now if I could just find my copy of Samuelson.

Keep Calm and Come Back

Posted in Uncategorized

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I am taking a short break to re-charge and get ready for the fall onslaught. But don’t worry, I’ll be back next week with a new post and new ideas about how we can improve the delivery of legal services.

If you haven’t done so, please read last week’s post, “We Need a Moonshot for Lawyers.” I’m counting on all of you to come up with great ideas for a moonshot we can use for lawyers during the next 10 years.

Thanks for reading and see you next week!

We Need a Moonshot for Lawyers

Posted in Leadership

MoonshotIt takes an undergraduate degree, a law degree, and passing the bar exam to become a lawyer in the United States. In other countries, it takes less time in the classroom, but some time in the real world. The money and time invested in training a lawyer before he or she has practiced for a day is enormous. Those investments represent a commitment by society to the idea of rule of law. Yet the overwhelming concern among lawyers today is not how to improve society, but how to make a buck.

It would be easy to chastise those in the profession and say this has not always been the case, but from what we can tell, it has. Law historian Lawrence Friedman said, “Most lawyers always served, mainly themselves, next their clients, last of all their conception of that diffuse, nebulous thing, the public interest.” As much as law was one of the learned professions (along with medicine and theology) it has been a way for an educated craftsperson to earn a living by solving problems. There is nothing wrong with earning a living by being a professional problem solver. But as Elon Musk, the man who expects to land humans on Mars in the next 10 years, has said, “Life can’t be just about solving problems. There have to be things that are inspiring and exciting and make you glad to be alive.”

From Solving Problems to Apocalyptic Collapse

Problem solving has worked well for most lawyers and presumably for most clients. But the web tells us that the legal industry is heading towards a total collapse. Large law firms are (almost) in free fall. Law schools are on the edge of closing their doors. Clients are willing to use any service provider that can bring down their legal costs while keeping them out of court, jail, or the media. Each morning I click on my iPhone waiting to see the headline, “The Legal Industry is Gone.” Richard and Daniel Susskind have predicted it, so it must be true.

While this apocalyptic vision of the legal industry’s collapse may arrive some day, reality seems to have outwitted the pundits for the moment. Things are not as rosy as they were a decade ago, but chances are high the legal industry will still be here a decade from now.

Yet, one thing bothers me every time I set foot in the classroom, give a presentation, talk to lawyers in a firm, or meet with in-house lawyers. The entire industry seems caught in a fog. Students and lawyers show up each day, do their thing, go home, and show up the next day to do their thing again. But I don’t see sparks, enthusiasm, excitement, or sense that they feel they are serving some greater purpose. I do not see lawyers who are “glad to be alive.”

I would like to believe that what I don’t see in the students at school or the lawyers at work, they have in their personal lives. Law is the thing that puts food on the table and fills the days with an honorable and sometimes interesting way to earn a living. It doesn’t always have to involve great ideas or massive challenges.

But this is where the story gets muddled. If all we can point to for the profession is the daily grind, then not many would (or should) want to join the profession. If money is the only driver, then we should expect to see exactly what we have seen: once money becomes hard to get prospective students and even practicing lawyers look to greener fields.

Some of this is good. There always will be people who chose a profession because it offers the greater gold, not because they have any particular interest in it. When gold is hard to come by, they will seek out the new gold avenue. But some of it is not so good. Individuals who could do much for society will choose another profession because who wants to spend seven years in school and take the bar exam only to find a “Not Hiring” sign on the door? Isn’t there something other than “pays the bills” and “makes me wealthy”?

Shoot for the Moon

The term “moonshot” goes back to the American space program conceived during President Eisenhower’s tenure. The United States had started its human spaceflight program in the 1950s with Project Mercury. It then moved to Apollo, a three-man spacecraft. President Kennedy followed President Eisenhower. In his May 25, 1961, address to Congress, President Kennedy announced the U.S. goal of “landing a man on the Moon and returning him safely to the Earth” by the end of the 1960s. President Kennedy’s goal, finally realized in 1969, has become known as a moonshot and programs with equally audacious goals have taken on the nickname.

During his 2016 State of the Union address President Obama announced a cancer moonshot. President Obama’s Cancer Moonshot started a new surge in the war on cancer. The moonshot, under the leadership of Vice President Biden, “aims to make more therapies available to more patients, while also improving our ability to prevent cancer and detect it at an early stage.”

Not all doctors, nor even all cancer researchers, will be directly involved in the moonshot. But many will. Many will devote their time and effort to eradicating cancer, and those who already have been on that mission hopefully will find new energy for their cause. We like big ideas and big challenges, because they give us goals. Solving a problem today has its own satisfaction, but solving a problem today that takes us a step closer to solving a massive problem can be far more satisfying. It gives us, as Elon Musk said, a reason for being glad to be alive.

Lawyers are Indispensable

As we look out across the issues affecting society, we see that law plays a role in almost all of them. Rule of law features heavily in discussions about major challenges facing countries. Access to justice is a major problem in the United States and around the world. Legal service costs have skyrocketed over the years, leaving many without any access to justice. Emerging technologies are raising new questions for which the law has no answers. How will we decide whether robots may take lethal action outside the scope of human control? What will we do about climate change?

Lawyers do things every day to help solve the world’s problems. As Professor Friedman says, “The truth is that the legal system is so complex, and so ubiquitous, that lawyers have become indispensable.” But the efforts of lawyers are hard to see and they blend with the background of all the other things happening in the world like one tile in a giant mosaic. To excite students and lawyers about what they can do, we need something bigger, something that will stand out, and something to which many of us can contribute.

To have that something, I think we need a legal moonshot. We need a legal equivalent of putting humans on the moon or taking a big step towards eradicating cancer. That is a big ask, but if we don’t have a big ask we aren’t shooting for the moon.

Because lawyers are a service profession, we think of ourselves as not having the problems, we are the ones that help others solve their problems. NASA’s engineers were there to make space travel possible, and doctors are there to help us eradicate diseases. Lawyers think of themselves as being there to help those who do the big things.

So, to find our legal moonshot, we first need to re-cast how lawyers view themselves. What is the greater good lawyers accomplish or can accomplish in the world? With that greater role in mind, go 10 years into the future to the year 2026. As you stand in 2026, look around and then look back at the past 10 years. The world’s population will have increased. The climate will have shifted a bit more. Technology will have advanced, we will have survived many calamities, and we will know much more than we know today.

What would you like to be able to say that lawyers accomplished during those 10 years as their legal moonshot? What idea do you think will galvanize those in the profession who want to make a difference? What are you willing to spend time on during the next 10 years and then be able to say “Do you see that? I helped make that happen.”

The Ask

I’m sure there are many worthy candidates for the legal moonshot. Please take a few minutes and think about what you would propose. Submit your ideas through the comments to this essay, or send me an idea on Twitter at @LeanLawStrategy. I hope to get many ideas and share them so we can together find our moonshot.

Lawyers like to say that practicing law stifles their creativity. This is your moment to let your creativity out and encourage it to have fun. Our legacy 10 years from now should not be: “We reduced the use of the billable hour by 20%.” If we want students to become lawyers for the right reasons, if we want lawyers to stay in the profession, and if we want the profession to survive as something greater than a highly educated bureaucracy, we need to create our own vision of what we can do as lawyers. I look forward to hearing your ideas.

To share a moonshot idea:

* Post a comment to this essay.

* Send me your idea on Twitter: @LeanLawStrategy

* Send me an email at kgrady@seyfarth.com (I will not share publicly who sent these ideas without the permission of the person submitting the idea)

On the Future of Law Departments

Posted in Change

LawDeptWe move forward by challenging the way things are today. It is easy to look at the world, see what is happening, and assume that is the way it has been and will be. It is hard to imagine a different future, but if we do, we often find ways to improve. The chatter today is about a world with different types of large law firms. In this essay, I’m going to ask a different question, “Is there a future with different types of law departments?”

Law Departments Are Not Immune to Change

There was a time when large corporations operated without law departments or, at most, had a general counsel. The legal work was done by law firms. Often, a lawyer from the main outside law firm representing a corporation would sit on the corporation’s board of directors. Practicing law was not considered, in the terminology we use today, a core competency of a corporation. Law firms were trusted advisors to corporate leaders.

If the corporation had a small law department, the lawyers were gatekeepers handling the legal work flow between inside clients and firms, and they handled simpler matters, such as routine corporate governance for subsidiaries. A general counsel might be a well-respected internal strategist, but the substantive work was done outside the corporation.

For many corporations, having a law department is a recent thing. Forty years ago, when I started working in law firms, it wasn’t hard to find a large corporation, even a Fortune 500 corporation, without a law department. I remember when Continental Bank, one of the largest banks in the United States, outsourced its law department to the law firm known then as Mayer, Brown & Platt. My first in-house job was with a Fortune 500 corporation that had started its first law department less than a year before I joined.

If you have been around corporations long enough, you have seen them go  through organization philosophy phases. At one time, corporations boasted large IT departments charged with running the heavy metal computers that comprised the IT infrastructure. The people in IT were not closely intertwined with the business. They were there to make sure the corporation’s backbone (accounting, ordering, etc.) functioned.

Over time, the heavy metal phase gave way to lightweight servers which gave way to the cloud phase. IT departments became integral business partners often charged with developing technology structures to support or implement new business models. IT leaders still must make sure the bills are paid and the orders tracked, but they do far more than that in a good corporation. At the same time, they have shed the routine, day-to-day work to outside providers.

We have seen corporations go from no law departments to large, labor-burdened law departments. Is it time for a phase-shift in law department philosophy?

Shifting the Corporate Law Department

Obviously, there are no legal barriers to operating a corporation without a law department, though in some corporations we would need to pull out the  compliance functions and keep them in the corporation. Law departments have advantages over law firms in many (not all) situations. But, advantages are not barriers to outsourcing. There are advantages law firms enjoy over law departments. In fact, most corporations do not have law departments until they reach a certain size or need level. Smaller corporations often operate without law departments, and “smaller” can be quite large including $1 billion corporations.

The question I’m posing, then, is whether we will get to the point where multi-billion corporations go without law departments or at least scale the law department down. Think of a law department with a general counsel and a few subject matter leads (securities, employment, etc.), but no one else even though the corporation ranks in the top 50 on the Fortune 500 list.

Today, the answer would be no. The cost gap between in-house lawyers and outside lawyers continues to grow while the skill gap shrinks. Over the past 30 years, and particularly over the last 5 years, corporations have learned they can bring in-house the same lawyer they use in a law firm, but at a greatly reduced cost. This knowledge has led law departments to go on a hiring binge as they trade outside spending for in-house payroll.

A New Model Law Firm to Support Law Department Change

What would it take to change? Let’s engage in a thought experiment. Imagine a new large law firm. The organization structure is similar to what we see in many businesses, with a central services function composed of centers of excellence (CSE). Those centers include human resources, technology, marketing, finance, and supply chain management. What does supply chain management do? It handles retaining and integrating resources outside the law firm that are needed for particular matters. These could include e-discovery vendors, managed service providers, and specialized technology services.

The CSE functions work together on a common platform (something like SAP for law). They each use specialized modules that hang off the backbone of this common platform. The modules talk to each other through the backbone, eliminating much of the complexity that exists in the modern, siloed law firm world. The backbone also could be used by law departments, allowing law departments to work seamlessly with many law firms and law firms to work seamlessly with many law departments.

The client-facing part of the law firm is more interesting. First, the firm has three major brands. We’ll call them Queen’s Counsel, Middle Lex, and Average Joe. All three use the CSEs, but each presents a different (though at the margin, overlapping) face to the world. In fact, each business is housed in a separate legal entity, all owned by the parent firm.

Queen’s Counsel markets itself as the best of the best. It is a high end purveyor of bespoke legal services that clients use when price isn’t the issue. It has partners with tremendous experience and the price for legal services reflects the premium quality. When Queen’s Counsel handles a matter, the matter leaders (not all lawyers) quickly disaggregate it into the high-end work (usually strategic planning and work on key documents), and other work. The other work is performed by a combination of one or both of Middle Lex and Average Joe, and outside service providers hired by the supply chain CSE. Very experienced project managers coordinate the process using the project management module attached to the backbone.

Middle Lex handles what the lawyers jokingly call “department store” issues. Clients are somewhat price sensitive when it comes to this work, but it still has a fair amount of non-standardized elements. Occasionally, the Middle Lex lawyers will call on Queen’s Counsel lawyers for expertise, but generally Middle Lex uses its team supplemented by the Average Joe team and outside providers arranged through the supply chain CSE. Middle Lex also uses project managers very experienced in handling its type of work.

Average Joe is a volume shop. The attorneys have specialized teams organized to very quickly and efficiently handle simple or routine (but not necessarily simple) legal work, heavily relying on technology. Most of the team involves domain specialists who aren’t lawyers, but are very well trained in their specialized areas. It has a steep pyramid structure, with very few supervisory personnel compared to the number at the base of the pyramid. Process improvement specialists fine-tune everything Average Joe does to make sure waste is kept to a minimum.

Average Joe is a supplier to both Queen’s Counsel and Middle Lex, because their matters generally have components well-suited to what Average Joe does and using Average Joe brings down the price. But Average Joe also does a lot of work directly with clients. For example, Average Joe can turn many types of contracts very rapidly at low cost. With its sophisticated software, database of tens of thousands of contracts (growing rapidly), and dashboard analytics, Average Joe can input a contract and tell in seconds where to focus its energy during negotiations.

Clients know the three businesses are owned by the same firm, just as they know hotels at various prices ranges are owned by the same company. Clients choose among the law firm businesses based on the matter at hand, just like they choose the hotel where they stay depending on need. The law firm operates the three businesses on different revenue and cost models, rolling the results up to the parent law firm. Lawyers own the firm and bear liability for all it does. But the firm manages the three units differently. Hiring, compensation, work environment, marketing, and more are differentiated based on the market for the services. Technology is held in a separate subsidiary that handles research and development and licenses specialized modules to other firms and law departments.

One of the key CSE teams is the Data Analytics Group (DAG). DAG captures streams of data from all of the legal work flowing through the firm. It gathers basic information, such as lead time, process time, and percent complete and accurate. It also does natural language processing and computational analytics. Each text document is stored in the same, prescribed format. As part of the storage process, the document is tokenized (broken into chunks, such as words), annotated (each word assigned a label), and parsed (relationships assigned within the document). Using machine learning and other tools, DAG creates the dashboards lawyers use as part of their workflow.

When a lawyer is asked whether a term is “market,” she can instantly query the firm’s database using DAG analytic tools and provide an answer across all similar matters the firm has handled and across all similar matters the firm can access. DAG combines the firms’ data with external sources, to provide rich models used as part of the firm’s predictive analytics offering. For example, the firm can look at all single plaintiff employment lawsuits it has handled, the results of all reported cases, and the results of all EEOC investigations. From that analysis it makes recommendations to the clients that could decrease or eliminate the risk from such lawsuits.

Evolving the Law Department

With this law firm model in mind, we can go back to whether a corporation needs or wants a law department. The corporation could decide to outsource its legal work to one or several firms of the type I just described. The work could be organized by geography, product line, or risk level and distributed among firms. All of the work would be done under value fee arrangements. The firms bear the risk, under the assumptions agreed to between the firms and the corporation, of cost overruns but the business model enables them to manage the risk.

Going to my question: would a corporation outsource its legal work and eliminate its law department? Probably not. More precisely, it probably would keep a small crew of lawyers in-house. The role of the in-house lawyers would change, however. The in-house lawyers would not oversee teams of lawyers, but would oversee the interface between the corporation and outside providers. They would also focus most of their time on strategic, business focused issues. The law firms would be far more cost efficient than the corporate law departments under the model I described.

If you think this theoretical law firm is unlikely, then consider a variation. The Big 4 accounting firms are all moving into the legal industry again. They already have all the capabilities I described for the new law firm, though they don’t use them as part of providing legal services—yet. A Big 4 firm would not have to move far to create the law firm structure I described, and already has the CSE and technology infrastructure to pull it off. The accounting firms tend to focus on the Middle Lex work right now, but adding subsidiaries to do Queen’s Counsel and Average Joe work would not be difficult.

We look at the way the industry is structured today, recognize that it has been structured the same way throughout our lifetimes, and assume change will happen slowly or not at all. Law firms are very fragile organizations (in the words of one of the largest law firm leaders, they start as a new firm each year). Changing the legal service delivery model is more about culture and habit and less about technology, processes, and costs.

Just as law firms will evolve into many models, law departments should evolve and some should become more like the model I describe—skeleton in-house teams managing sophisticated and multi-layered outside law firm models. Law departments have tremendous opportunities to re-shape legal practices, not just through their outside law firm spend but by re-designing their internal models to meet what clients need. Just as law firms have been slow to evolve, law departments are sticking largely with mini-me law firm models (even the law departments in the UK, where we have seen the most evolution). For law departments to really cut costs, become highly responsive to clients, and reduce risks, they too need to re-think their legal service delivery models and evolve.

Insecurity, Cybersecurity, and Career Security

Posted in Technology

JobSecurity

“I actually think that law enforcement should be difficult,” Marlinspike says, looking calmly out at the crowd. “And I think it should actually be possible to break the law.”

Moxie Marlinspike

Moxie made that statement while sitting on a distinguished panel of cybersecurity experts at RSA, the main conference on computer security. Meanwhile, the legal industry was pre-occupied with how much to bill or pay for legal services and whether knowing almost nothing about computers is okay for lawyers. This juxtaposition plays out every day as the legal profession ignores the issues that concern society and focuses more and more on a shrinking set of issues that concern only lawyers.

Cybersecurity is Big Time

This past week, one of the big news stories was the hack of the Democratic National Committee’s email system. This was the latest in a now long string of hacks that have raised cybersecurity to one of the biggest issues on many CEOs agendas. The United States government believes Russia was behind the DNC hack, but regardless of the perpetrator, that fact that it happened and affected one core aspect of a democratic nation—the presidential election process—brought cybersecurity into full view, again.

Moxie Marlinspike is one of the good guys fighting the cybersecurity battle. Our vision of what a good guy looks like is closer to Moxie’s peers. We think of military officers wearing uniforms filled with medals, serious looking men and women in dignified corporate uniforms, and academic types who lean towards the corporate style. Then there is Moxie. At 6’2” and rail thin, he stands out (literally) among the crowd. Top that off with a head full of dreadlocks, and you have a guy who does not give off at first glance the good guy vibe.

Moxie is on the panel where he made his “break the law” statement because he created Signal, a free encrypted messaging and voice-calling app which most consider the easiest and most secure to use. In fact, it is so easy and so good, former law enforcement officials recommend it and computer scientists drool over it (literally).

Moxie made his statement because he is highlighting a deeper question: do we really want a world where law enforcement can know everything? This question has become one of the hotly debated topics of our time. If you don’t think so, just recall Edward Snowden, Apple’s battle with the FBI, and closer to home the FBI’s warning to all large law firms that they are being or have been hacked.

In a world where we are trying to connect everything, we can be certain the bad guys are trying to invade. To what extent will we give up our privacy to fight the bad guys? Each of us has an answer. All of us should agree the question is a serious one deserving plenty of attention. In fact, “The World Economic Forum…listed cybersecurity as one of the greatest threats to businesses globally.” But, the troubling question is why lawyers are more focused on their own issues than client issues?

Climb Into the Lawyer Foxhole

The cybersecurity talk is interesting, but you may ask what use is it to lawyers to know a dreadlocked cybersecurity expert thinks it should be possible to break the law? The answer lies in the role you think lawyers should play in the evolution of our digital society. It appears that most lawyers think turning a blind eye to the issues and problems is the best approach. But if CEOs think cybersecurity is a major issue, shouldn’t their lawyers take a more active interest in it?

You may say I do real estate / benefits / tax / antitrust / environmental / [fill in the blank] law, and that is an issue for cybersecurity lawyers, so leave me alone I don’t have time to climb out of my foxhole and look around. In the most narrow, “I only do one thing” sense, you may slide by with that response. But in the broader sense of lawyers serving clients’ interests, it is hogwash.

Lawyers Need to get in the Tech Game

We can go back to Moxie and Signal. Start with Model Rule of Professional Responsibility 1.1 “…a lawyer should keep abreast of changes in the law and its practice, including the benefits and risks associated with technology…” Then look at Rule 1.6(c) “A lawyer shall make reasonable efforts to prevent the inadvertent or unauthorized disclosure of, or unauthorized access to, information relating to the representation of a client.”

You may be one of the lawyers complaining about these requirements. You have to stay current on the law and now you have to stay current on technology? On top of that, you have to market, bill, and manage, so where do you get the time to become a technology guru? If that is what you said, then you have company in Virginia. The Supreme Court of Virginia recently considered adding the Model Rule requirements to the state’s rules, and received comments in opposition voicing those same thoughts. The Court, wisely, added the ABA provisions to the state’s rules.

Before I go further, let’s debunk the straw man arguments. The Rules do not require lawyers to become IT gurus, just that they get in the game. The lawyer who thinks he can operate off the technology grid has a fool for a client. The CEO of a major company does not know how every aspect of her business works. But, she also better not answer an analyst’s question about a key area of the business with “I never did mind about the little things.” (Extra points if you know the movie from which I took the quote, without using Google.) There is a noticeable difference between tech guru and tech familiar.

Now let’s look at Signal. Signal is distributed by Open Whisper Systems. As the name implies, it is an open source product. For those not into the lingo, open source means the developer makes the computer code freely available. In most cases, they go further and ask the community to contribute improvements to the code. (Stop me if this sounds like the antithesis of lawyering.) Open source isn’t a fringe area. Linux is one of the more commonly used computer platforms (don’t be surprised if your law firm uses it) and it is open sourced.

You install Signal on your smartphone and it works on both iPhone and Android operating systems. It works with calls and text messages (but you must have an internet connection). Signal says it provides the following benefits:

  • “Send high-quality group, text, picture, and video messages, all without SMS and MMS fees.”
  • “Use your existing phone number and address book.”
  • “We cannot read your messages, and no one else can either.”
  • “Pay nothing.”
  • “Make crystal-clear phone calls to people who live across town, or across the ocean, with no long-distance charges.”

Signal seems to have a fairly strong value proposition, putting aside for the moment whether Edward Snowden and Laura Poitras endorsing it is a plus or minus for you. When we compare what Signal can do to what Rules 1.1 and 1.6(c) say, you should at least ask whether it is “reasonable” to not use such free encryption software. We can do a quick comparison of the reasonable test in the Comments to Rule 1.6 and what Signal offers:

I am not pushing Signal, I am merely using it as a convenient example (and yes, I recognize Signal has some limitations). Before you run out and install Signal, make sure you ask your IT department whether it will work with any systems they have installed or connected to your phone. But, recognize that the National Lawyers Guild uses it and Facebook has installed the Signal protocol in its Messenger system. As they say, what is good for over 1 billion people can’t be bad for everyone. Or, as Marlinspike says, “The big win for us is when a billion people are using WhatsApp and they don’t even know it’s encrypted.”

So on the one hand we have Signal, a freely available product being built into the most widely used social media tool, and on the other hand we have lawyers who should be taking reasonable efforts to protect client confidentiality. Most of those lawyers use their smartphones to communicate with clients, the lawyers at large law firms know they are targets of hackers, and yet we can surmise that most lawyers don’t think about whether their communications with clients are protected. Notice that the Rules don’t focus on whether the lawyer practices real estate / benefits / tax / antitrust / environmental / or [fill in the blank] law.

Mind the Big Things

If the goal of this story was simply to chastise lawyers for not being more careful with confidential information, we could stop here. But I have bigger goals in mind. Let’s start with lawyers’ obsession with revenue and profits. I use the word “obsession” because the focus goes far beyond building healthy businesses. For lawyers, it is the beginning, middle, and end of each day (I have actually heard lawyers greet each other in the hallway with “how are the billings?”). Run a Google search on “lawyer and revenue” and you get 36,900,000 hits in an impressive 0.38 seconds and for “lawyer and profit” you get 73,600,000 hits in 0.53 seconds.

That obsession is pushing out time for anything else. Moxie created a system that we can easily imagine bad guys using to help them break the law. Moxie then sat on a panel and said he thinks being able to break the law is a good thing. I think Moxie is raising a point we should discuss and it is healthy to debate privacy versus law enforcement access. But there wasn’t a lawyer on the panel to engage in that debate. It was technologists debating among themselves, and that is not healthy.

Lawyers are ceding their role in society by building a wall around themselves. That wall has a sign on it that says “don’t come talk to us unless you bring money.” Sure, lawyers need to make a living. But part of making that living is serving a broader purpose, just as corporations have learned that part of operating in society involves more than focusing solely on profits.

Clients want to do business with engaged lawyers, just as customers want to do business with engaged corporations. It wasn’t Moxie’s fault that no lawyer was there to respond. It wasn’t even the fault of the RSA conference organizers. Lawyers have created the perception that they are uninterested and irrelevant by training others to believe they don’t care about technology or really anything except the economics of the practice.

Today, Moxie is an industry insider, though he describes himself as an anarchist living on the outside for a long time. He led Twitter’s security team, has the deal with Facebook to use Signal in Messenger, and has created the “largest end-to-end encrypted communications network in history.” He also isn’t a radical, at least in the sense that he isn’t the wild-eyed one we all fear. His comment about breaking the law ties to his bigger theme that “privacy allows people to experiment with lawbreaking as a precursor for social progress.” The debate about encryption software isn’t about software, it is about larger societal values and where breaking the law fits in, something all lawyers should find interesting.

You don’t need to be a cybersecurity lawyer to ask whether you are doing what is reasonable to protect client confidentiality. You don’t need to be a computer expert to care about the issues that are top-of-mind for your clients. You do need to be a lawyer concerned about more than the next six minutes of your time. Lawyers need to do a lot to climb out of the deep foxhole they are digging for themselves. The first step in job security is having a skill that others need. Clients don’t seem to need people whose primary skill is counting the money they get paid.

One of these days…

Posted in Efficiency

HoneymoonersI grew up watching the first runs and in some cases re-runs of great, early sitcoms. The Honeymooners (1955-1956). The Dick Van Dyke Show (1961-1966). The Andy Griffith Show (1960-1968). I Love Lucy (1951-1957). Each of these shows featured pioneers in television comedy. They have been so influential, that if you watch sitcoms today (something I rarely do), you can catch moments when the writers will pay homage to the early shows by throwing in one of the famous tag lines.

Jackie Gleason’s show The Honeymooners ran in its first outing for only 39 episodes. It faced a timing problem—it was up against the extremely popular The Perry Como Show. The Honeymooners broke new ground by featuring a working-class couple living in Brooklyn. Years later, All in the Family  would pick up on this theme by featuring a working class family living in Queens.

Jackie played Ralph Kramden, a Brooklyn bus driver, and his wife Alice was played by two actresses, the more memorable being comedienne Audrey Meadows. Ralph’s friend was Ed Norton played by another great comedian, Art Carney. Ed’s wife, Trixie, was played by Joyce Randolph. Alice was the inspiration for Wilma Flintstone, Ed was the inspiration for Fred Flintstone, and Trixie was the inspiration for Betty Rubble (and if you don’t know The Flintstones cartoon, you missed a popular culture icon).

The plot revolves around Ralph who has a never ending series of get-rich-quick ideas, each of which Alice shoots down throughout the show. Ralph and Alice, with Ed jumping in, bicker about Ralph’s ideas shooting streams of one-liners. And, of course, by the end of the show Alice’s concerns are borne out and Ralph never reaches the pot of gold.

One of Ralph’s taglines became the instant identifier for those who watched the show. As Alice and Ralph bickered, both would get frustrated until Ralph would bark out (with many variations): “One of these days…” followed by “BANG, ZOOM! Straight to the moon!

Lean is More Than Cost

Today, when I hear over and over again misleading to blatantly wrong descriptions of lean, I’m tempted to shout “BANG, ZOOM! Straight to the moon!” Of course, I’m seldom around someone who would get the line, so I just say it to myself.

Why do I get so frustrated? First, I recognize that most of the comments come out of ignorance (and, in that, I see myself ignorantly speaking about other areas). It is a lawyer habit to read what is written in a paragraph or a blog post and think, “now I too am an expert.” We then want to pontificate on the topic and that leads us into swampy waters. Nevertheless, when I hear someone say “lean is all about cost cutting …” Well, BANG, ZOOM!

Second, I know as we all know that repeating incorrect things often can derail good ideas. It is easier for us to take in what we hear as gospel rather than dig deeper and learn the facts. Say lean is all about cost cutting enough times, and lawyers (who already aren’t interested in becoming efficient) will take those comments as defining lean and reject it.

Third, the person who describes lean as merely cost cutting frequently follows their statement by adding that they tried lean and it doesn’t work. Lean is not the only new idea in law that elicits negative comments. The same people often deride value fees. Dig a bit deeper with them and you find that they were opposed to the ideas, they didn’t make an effort to implement them correctly, and that the so-called failures were mostly if not entirely due to the person not the ideas. In other words, the person is against change and their agenda is to prove they are correct, not to explore new ideas.

The Real Lean

Lean thinking (the original name was Toyota Production System, but I’ll use the name given by James Womack and Daniel Jones in their book, Lean Thinking) brought together many ideas from many streams starting at Toyota back in the 1890s. It worked in part because the right people were in the right place at the right time.

Japan was in its post-World War II phase. As an island nation, it did not have the raw materials necessary for automobile production, which is what Toyota was focused on shortly before and coming out of World War II. Lean was born in a situation of many constraints, which made efficiency and creativity priorities. Contrast that with the United States, which had the necessary raw materials,  could be inefficient without blocking progress, and traded space and brute force for creativity in operations.

Japan also had a very strong cultural belief in employing individuals for life. In fact, to this day Japan still places a high value on lifetime employment. Many businesses will re-deploy workers to keep them busy (even tending gardens) rather than lay them off when times get tough. In the United States, employees always have had less job security and today are treated as disposable by most businesses. When workers aren’t afraid to lose their jobs they are more likely to actively support efforts to remove waste from their jobs, even if doing so eliminates the job they do today.

Japan’s management style was quite different than the management style in the United States. Japanese companies placed a high value on discipline and order. In fact, order is something prized in Japanese society, while clutter has been widely accepted in the United States. If you already favor order, then engaging in a system designed to bring more order doesn’t seem as foreign.

I am not praising Japan over the United States. There were many challenges to Japan’s approach, and emotional intelligence in management was one of them. But it is important to understand the context in which lean thinking came together. Lean thinking flourished in an orderly, disciplined, clutter-free, secure world. Porting lean from Japan to the United States, therefore, was always going to be a difficult task. But it was not a task first and foremost about cost, it was about waste and creativity.

One of the early contenders for this new system’s name was Respect for Humanity (as was the Ohno System, in honor of Taiichi Ohno who did much to pull the streams together). So let’s take a brief trip back to Japan post-World War II as the lean thinking story started and think about respect for humanity.

Don’t be Wasteful

The Toyoda family (they switched to Toyota for public use) had decided to enter automobile production prior to World War II. Coming out of the war, they resumed their efforts, but all the things they needed—steel, rubber, iron—were in short supply. Toyota also faced an efficiency challenge when compared to auto manufacturers in the United States and other countries. What took Toyota 100 workers to accomplish, took Nissan only 30 workers, and Graham-Paige (a U.S. manufacturer) 18. Ohno had to figure out how to get the most possible from each unit of raw material and how to use brains instead of brawn to compete with other companies. In other words, he had to get waste out of the system and harness creativity to solve operational problems.

As I noted above, the idea of removing waste, or not even creating it, fits well with many Japanese philosophies. When you live on islands and have constrained resources, efficiency becomes a way of life. Look at Japanese farming techniques and you will instantly recognize terraced hills for rice growing, making use of space only a very sure-footed individual would dare to reach. Go to a Japanese fish market and you can buy whole fish or every part of the fish separately. Nothing goes to waste. Even Japanese martial arts share the no-waste philosophy. The movements of a great martial artist are lean and focused on the goal. Students spend their lives trying to master the physical and mental goals of simplicity.

Many societies have similar practices, but in post-World War II Japan frugality and simplicity were central to daily life. It did not feel unnatural to have the same view in manufacturing (although Ohno met with resistance just as we do in the United States, since change seldom comes easily).

Lean was focused on removing the eight (originally seven) types of waste, or muda. One clear benefit of removing waste is cost reduction. If you don’t waste raw material or humans, you reduce the cost of the product. Ohno reminded everyone that the equation for a business is Price – Cost = Profit (not Profit = {rice – Cost or Price = Cost + Profit). The customer will only pay a certain price. Therefore, a business earns its profit by reducing its costs. Remove waste, costs drop, and the business becomes more profitable. Cost reduction is part of, but not all of, lean.

Lean Concepts Seem Foreign in the U.S.

Contrast the Japanese context with the United States context post-World War II. The United States had gone through the Efficiency Era, which lasted from 1890 until 1932 and the start of the Great Depression. Many blamed the Depression in part on an excessive focus on efficiency. As a result, businesses downplayed efficiency.

World War II brought incredible demand for products, but even the United States had trouble meeting demand for raw materials. After World War II, supply remained tight for many years. Still, the United States was the land of great riches and it could grow supply to meet demand. Japan, the land of islands, had to import its raw materials.

As you look at the period from 1945 to the present, you can see how the paths taken in Japan and the United States diverged. Toyota remained focused on efficiency through to the present. United States manufacturers did not swing their focus back to efficiency (in large scale) until the late 1980s. Law did not start dabbling with efficiency until after 2005.

By the time lawyers in the United States even started looking at lean, it had gone through several evolutions. I learned lean thinking from sensei (teachers) who worked at Toyota with Taiichi Ohno and were part of the original Toyota Autonomous Study Group that created most parts of the Toyota Production System. I studied at Shingijutsu Co. Ltd., a consulting firm Ohno encouraged these sensei to start to spread lean thinking beyond the automobile industry. I look at lean through the lens of those who developed it.

Contrast that with the background of many who talk about lean in the legal industry today. Most have learned lean from individuals who were two or more generations removed from the original lean thinkers. Much of the discussion about lean comes from an incomplete understanding of its philosophy, because the training they got focused on discrete goals rather than the big picture. The lean practitioners in law skip many of the essentials and concentrate on cost. This distortion makes lean look either like something a low-cost manufacturer would use (not a great law firm) or a misguided attempt to turn lawyers into automatons.

For those who want to really understand how lean thinking can help the legal industry (and work harmoniously with innovation and technology), start by asking yourself this basic question: “Do I believe it is good to have people spend their days on tasks that have no value?” If you answer “yes” then lean thinking won’t work for you. If you answer “no” then lean thinking can help.

Let’s put some meat on those bones. Look at what you do through the eyes of a client and a lean thinker. Is there value in any of the following, or are they simply things you do because you haven’t been creative and found ways to reduce or eliminate them:

  • Moving papers from one place to another (electronically or physically),
  • Emailing,
  • Photocopying,
  • Searching for anything (templates, cases, documents),
  • Waiting,
  • Revising,
  • Reviewing,
  • Correcting,
  • Transferring,
  • Re-creating,
  • Etc.

A big part of the value lawyers bring clients comes through the solutions they create to client problems. The execution of those solutions is the embodiment of the lawyers’ ideas. We should encourage creative problem solving, but we should also encourage efficient execution of ideas. Our current system encourages inefficient execution and, when each day is constrained to 24 hours, that limits the time to spend on problem solving.

Lawyers have trouble separating efficient from inefficient execution, because they haven’t been trained to do so and have been encouraged and taught not to do so. Legal training is largely about teaching inefficiency. If someone has taught you to be inefficient, rewarded you for your inefficiency, and you have been successful (at least financially) because of your inefficiency, you will fight alternatives.

Respect for Clients and Lawyers

The topic of how lean relates to delivering legal services deserves more attention, and I am giving it that attention in other places. But right now, I’ll close with this. Lean thinking reduces costs, but it is not about reducing cost. Lawyers who remove waste from what they do will be happier, less stressed, have more time to focus on substance and quality, and be more engaged in their daily activities. All of those changes encourage creativity and show Respect for Humanity.

All of those changes also reduce the cost of legal services (note: cost, not price, which is the topic of a different discussion). There is nothing wrong with reducing cost through waste elimination. In fact, if you look at the businesses who hire lawyers you will find most of them believe in cost reduction through waste elimination. On a broader scale, society benefits from removing waste (healthcare is one example, another is the food supply chain—approximately 50% of the produce in U.S. supermarkets is thrown away as waste, which is one reason we have an imbalance on access to food).

If you still don’t believe that lean has benefits beyond cost reduction, then do this exercise. Ask one of your lawyer colleagues to sit down with you and the client (that is, the person who really pays the bills, not an in-house lawyer). Tell the lawyer that she will spend more than 50% of each day doing things that add no value to the service the client will get. None. Zero. She will do those tasks merely because no one has bothered to spend time figuring out how to eliminate them.

Then, turn to the client and tell her she will pay for those tasks, even though she gets no benefit from them. None. Zero. Tell her she pays for them because it keeps lawyers busy, makes some rich, and overall because no one has bothered to spend time figuring out how to eliminate them. Ask both if they feel the legal system is showing Respect for Humanity with this structure.

Lean thinking is not a panacea, it is not a silver bullet, and it is not the solution to all that ails the legal industry. But it is a great place to start requiring creativity. So, next time you say to me that lean is simply about cost cutting, don’t be surprised if I say BANG, ZOOM! Straight to the moon!