Opaque. That is the word many use to describe the law. Court decisions written in ways that confuse and bewilder the ordinary reader (who, nevertheless, is presumed to know the law), doctrines from a time long ago when the horse drawn carriage was still the preferred mode of transportation, and rules that define a time when how you did something was as important as what you did. To most laypeople, the law has been something better left to those trained in the mystical arts of being a lawyer. That was then, and this is now.
The Internet has stripped away much of the mysticism associated with many professions. What was buried in books difficult to access now can be found by doing a search using Google. The Internet has its limitations. For those who really need the text of the law—lawyers, other legal services providers, scholars, consultants—the Internet captures a small fraction of what should be available. PACER still locks behind an absurd paywall (and one of the world’s worst user interfaces) access to public documents filed in the federal court system. Some state court filings aren’t on accessible systems. You can find federal statutes, but you can’t access various materials essential to the statutes (e.g., building codes, industry standards). The Internet has opened the doors to the library and let us access some of the main areas, but we are not close to getting in to all the stacks.
Law in some ways is becoming more opaque each year. For a long time, parties to a dispute had three choices: drop it, settle, or litigate. Settlement might happen through negotiations, mediation, or even arbitration. Litigation happened through the courts. When the costs to litigate were lower, litigation was a reasonable alternative. The courts moved cases along and stood behind the outcome, often with published opinions. Parties might use a private resolution process (settlement, mediation, and arbitration), but the dynamic was different than today.
With federal courts years behind in resolving civil lawsuits (more than three years, last I looked), more parties see private resolutions as a necessary alternative. Waiting more than three years to resolve a dispute involves many costs that parties simply aren’t willing to incur (including the risk attendant to an issue remaining open for more than three years). As dispute resolution moves from public to private, the law becomes less transparent. The mediator’s opinion (if there is one) and the arbitrator’s written decision remain hidden from the public.
A new trend compounds the problem. We can put it in the category of unintended consequences. One of the benefits (and there are benefits) of using an outside law firm could be called “perspective.” A law firm or other legal services organization works with many clients and sees legal issues and factual problems through the lens of working with those clients. The larger the firm or organization, the more the clients, and if the firm or organization has a substantial practice in an area, the broader its perspective.
Legal services providers in a law department are limited, of course, to what their client experiences. They may read cases, hear stories, or talk with legal services providers at other companies to broaden their perspective, but it is not the same. In many cases, the in-house legal services provider is a generalist. So, only a portion of his or her practice is devoted to a domain. An outside legal services provider typically is a specialist, and so spends most or all of her time on certain issues. Again, the outside legal services provider has the edge when it comes to perspective.
The unintended consequence occurs when in-house legal services providers pull work away from the outside legal services providers. First, the in-house team loses the perspective of the outside team. At first, the lost perspective doesn’t mean much. But, over time, the lost perspective means the in-house teams works in something like an echo chamber. They simply can’t bring the same broad scope to problems that an outside team can (as always, there are exceptions).
Second, the body of semi-public law diminishes. While outside lawyers don’t share across clients the specifics of what they do with other clients, the knowledge they gain is available (assuming no confidentiality or privilege issues). As the outside services providers represent more clients, that knowledge gets shared and becomes part of the public domain of corporate legal services.
When work moves in-house, the knowledge transfer mechanism of the outside legal services providers is shut off. The in-house services providers do not share across clients or, if they do, they do so in a very limited way. The body of semi-public law does not grow and evolve as quickly, because the inputs to that body have been limited. By moving work in-house, corporations are inadvertently stunting the growth and development of law.
We don’t fully know the consequences of this development. Initially, the move to in-house work from outside legal services providers was small and the impact on the body of semi-public and, eventually, public law undoubtedly was small. But over time, the trend has grown and the impacts will increase. This “populist” legal movement—fighting against the globalization of law—could further isolate both the in-house and outside legal services providers.
The Missing Feedback Loop
We should look at a second unintended consequence of the in-housing of legal services: the elimination of a feedback loop. Many decades ago, if a legal services organization (at that time, a law firm) provided services to a client, such as drafting a contract, the client usually went back to that legal services provider when a problem came up. The durable and often long-term relationship between the legal services organization and client meant they worked together. Sometimes, the dispute just happened, but sometimes it came out of something the outside or inside legal services provider missed. It didn’t matter. The two worked as a team to handle the dispute.
Today, in-house legal services providers typically view the contract and the dispute as separate matters. Perhaps the in-house legal services provider drafted the contract, and now the outside legal services provider will handle the dispute. Or, perhaps one outside legal services provider drafted the contract and a second one will handle the dispute. In each scenario, there is a disconnect between the contract matter and the dispute matter that crosses into who provides the services.
When that disconnect happens, the legal services provider who did the initial work loses the feedback from the dispute. Imagine that you are asked to draft a manufacturing agreement. You handle the drafting, work on the negotiations, and bring the contract to completion. Then, you hear nothing else.
Three years into the contract a major dispute erupts. Instead of going back to the legal services organization that did the work, the client goes to a different organization. The first organization, and the legal services provider, lose the feedback from the dispute. Was it a drafting problem? An anticipated risk? Did the client omit critical information?
With the feedback loop broken, the problem (if there was one) that gave rise to the dispute does not get fixed at the original legal services organization. It may be carried forward to other contracts and with other clients. It could even be carried forward in other contracts for the same client.
Broken feedback loops have existed for a long time in the legal industry, but the move to in-house legal services adds another pound of pressure on the flimsy connection between action and response. It exacerbates the trend of thinking about legal services in discrete packets of activity rather than in a unified or holistic way.
The Need For Theory and Strategy
I have written before about the looming problem of a short-term focus on cost savings from labor arbitrage versus the longer-term solution of looking at processes, technology, and labor as a way to reduce costs, increase quality, and increase services efficiency. We can now add to the labor arbitrage risk the challenges of knowledge isolation and degradation and further erosion of the feedback loop.
If bringing work in-house (excessively) creates these several problems and if those firms that already brought work in-house become aware of these problems, why does the trend continue? The most obvious reason—money—always lurks in the background. Companies work quarter by quarter. Bringing work in-house has an immediate and positive economic impact. The negative impacts take longer and are more difficult to measure. Depending on the time involved, they may even become the next person’s problem.
An even deeper problem is the somewhat random nature of legal services delivery models. Or, put in the words of Clayton Christensen (The Innovator’s Dilemma, Competing against Luck), the legal industry lacks theories of legal services delivery. Instead of developing testable, if-then hypotheses, then carrying out actions consistent with the hypotheses, and then measuring the results, in-house law departments just do things.
Think about the many inconsistencies in legal services delivery approaches. Some corporations go through elaborate RFP processes, only to end up with discounted hourly rates. The corporations change from provider to provider, tweaking the RFP and moving work to follow the (decrease) in money, but without any real way of measuring short- or long-term consequences. Corporations set up panels of providers, but some firms get the lion share of work and others never see a matter. Corporations do not set up process improvement systems, or even integrated processes, with outside legal services providers (see my post on keiretsu).
Often, part of the problem is the lack of in-house knowledge about supply chain options and dynamics. In-house providers tend to avoid setting up contingency plans. Why spend time and other resources on developing a supply chain solution for a situation that may never happen (e.g., a managed services provider coupled to an e-discovery vendor and one or more law firms). The lawsuit comes, the in-house providers either default to the panel, go on a quick RFP adventure, or go to the firm they used before. None of the solutions is a strategy, they are just tactical responses.
Ad Hoc is a Choice, Not a Plan
While the legal industry has been around for a long time, when it comes to legal services delivery the industry is a novice. Corporations and law firms should start working with academics (who have time, resources, and access to other helpful knowledge) to build testable theories of legal services delivery. General counsel should act like they do actually run business units, not just manage in-house law departments masquerading as outside law firms (which means I’ll stop hearing from general counsel who tell me they modeled their law department after a high quality law firm).
As artificial intelligence (still in its infancy in law), automation, and other tools of legal services delivery take over larger chunks of the legal services industry, lawyers both in outside legal services providers and in-house legal services providers need to move from ad hoc practices to data-driven, scientifically based, solutions. They need to incorporate strategic thinking into their daily activities. And, they need to figure out whether the current trends of privatizing law, capturing law in silos, and defeating feedback loops will really achieve the long-term goals of clients, or the short-term goals of a few lawyers.