Red HerringWe should start with the phrase “red herring.” We know that it means a decoy intended to lead us in the wrong direction. But do you know the origin of the phrase? No one knows. As with many phrases, we can find an origination. The oft-cited story explaining the modern use of  this phrase is that someone used a red herring (a type of salted herring) to obliterate his smell so that hounds or wolves lost his scent.

Today’s red herring is the argument that we must have de-regulation, or changes in regulation known as re-regulation, in the legal industry. Through these changes, we can overcome the appalling and declining lack of access to justice. Let’s tear this decoy apart.

De-regulation or Re-regulation

I think most individuals looking for change in the legal industry stay away from de-regulation. Eliminating regulation of legal services delivery would let the charlatans who prey on the unsuspecting ply their trade. We can put de-regulation to the side. I have heard and read arguments for the alternative—re-regulation or changing legal services regulation. In this version of the future, lawyers lose their monopoly, but those who provide legal services must follow “legal consumer” protection laws.

Those who favor re-regulation believe authorities should remove the monopoly chokehold lawyers have on the practice of law. The UK’s Legal Services Act of 2007 gets dragged into the fray as one example. Australia’s and New Zealand’s changes are others.

Removing the monopoly should encourage new parties to provide legal services. Those new parties would bring cost competition, creativity, and access to legal services for people without access. The corporate end of legal services should benefit too. The influx of new providers will drive innovation. The theory is we will move from our dismal world ranking on access to justice (out of 100, the US falls between 65 and 94 depending on whose ranking you look at). The hope is that our ranking will improve because clients will get what they need in legal services.

Fair enough. Changing the regulations, depending on how they change, may deliver those benefits. In the UK, citizens have gotten benefits, though fewer than they or the government expected. The UK has established a group to examine the 2007 Act’s with the hope of determining what has limited the effects of the law. Let’s all agree—changing the regulations could help.

So…

We Can Do Better Without Waiting

The red herring is the re-regulation argument. We have what we need to fix the lack of access to civil justice problem. Changing the regulations may make a few things easier and transaction costs could drop. But, the problems we need to solve are independent of the regulatory structure. The barrier to solving the problems is lawyer resistance to change. Fix that problem and changing the regulations will become a side show at best.

Consider this one example. Solo practitioners argue they have a technological disadvantage. The cost of emerging software is beyond their grasp, either in time to implement or money. The professional responsibility rules prohibit law firms from having owners without law licenses. If we re-regulate, the argument goes, these firms can get access to money and resources through new owners. They can use those investments to bridge the technology gap. We already have a solution. Create a technology business (incorporation costs are trivial). Get investments in the second business which acts as a services business to the law firm. Spread the technology firm’s costs across several small firms. This model, or variations of it, exists.

We could change the current business model for legal aid. Necessity being the mother of invention, we will need creativity if the federal budget drops the Legal Services Corporation (which the proposed budget does). Middle class Americans lack or shun access to legal services. But, we have tools and can put in the field a different legal services model, compliant with the current rules, that gives this group access to legal services. The small firm lawyers providing the services would make a nice living.

Ignore the re-regulation decoy, we could improve today. But, lawyers resist change. Go back to that false premise: many lawyers believe that they have a monopoly to practice law. Wrong! Lawyers, at best, have a monopoly to represent other parties in certain situations (e.g., court hearings). Want a will? Go ahead, draft one. Or, go on LegalZoom or Rocket Lawyer and use a form. Or, go on the Internet and download a form. Confused? The online services have help sections, you can read many articles, you can buy DIY books that may answer your questions.

You can be your own lawyer whenever you want. Bye bye monopoly. “But wait,” you say, “that isn’t what I meant. I meant you can’t hire someone to do certain things for you unless that person is a lawyer.” If you need that someone to go into court, the lawyer monopoly applies (unless you count self-representation). Clients go without lawyers because lawyer put barriers between themselves and clients. Other niches exist. Everything else requiring hiring someone to do work for you falls into that ambiguous bucket the “unauthorized practice of law.” And watch out for smart contracts. Computers practicing law without lawyers.

Could a consultant draft a contract? They do. Could a financial planner write a will? They could point you to LegalZoom. Most lawyers would say “no” to both questions. But Legal Zoom, Rocket Lawyer, and the Internet have blurred the line. It is difficult to define the unauthorized practice of law because we can’t define  the practice of law. We like to think we know it when we see it.

If we go big, to corporate legal work, the unauthorized practice of law gets fuzzier. Most bar authorities believe that corporations can take care of themselves (they can) so they don’t waste time protecting them. That has left the field wide open for entrepreneurs to move in. It is hard to say today that lawyers have a monopoly. Lawyers have a pre-existing claim to certain legal services that shrinks by the day. This is one of the reasons small firm lawyers have stagnant income.

Strange, since lawyers resist change to protect incomes. They want to defend what they have left of the monopoly. They want to retain some level of prestige. They want to retain power. The list of actual and possible reasons seems unlimited. Whatever the reasons, lawyers resisting change is the principle barrier to fixing our access to justice problem.

Making Progress

My concern with the re-regulate movement is that it has become a distraction. Rather than acting to fix problems, we justify lack of action on failure to re-regulate. Regulation may affect how we structure changes and it may make some structures higher cost than others. Those are details. Let’s dig in and fix the problems. As the problems get fixed, regulation will become a minor issue and regulatory change will happen. As the regulators ponder, we will solve problems.

If we can fix problems, what holds us back? Go back to lawyers resisting change. We are 10 or 15 years into real change efforts in the legal industry. I have been at it for 38 years. Others have decades of change-resistance fighting on their resumes. In the boom times of the 1980s, lawyers gave no thought to change despite what I and others said. As lack of access to civil justice came to the forefront, as the recession hit, and as lack of access to civil justice is tied to larger societal problems, change is in the air. But, lawyers hold us back.

We can measure change in the legal industry by the movement of glaciers. Lawyers agreeing to change is the start. Change is big—it requires lawyers learning new ways to deliver legal services. Lawyers have to work as part of teams. Lawyers will cede some authority to gain influence. How a lawyer earns money needs to change. The changes needed to fix the problems like access to civil justice aren’t small and they aren’t without controversy.

For those who want to direct their limited time and resources at the American Bar Association or state bar associations and argue for re-regulation, go for it. The ABA is a byzantine group with as many political agendas as members. I think focusing on fixing the problems is a better use of time.

That statement presumes we can fix the problems, and I think we can. One problem that gets in the way of most others is the economic model for legal services. The current model uses high-cost labor. It is a model that worked in the 1800s, but is ill-suited to the 21st century. We know how to change the model. The tools to change have existed for decades. Some tools have existed for 100 years. Newer tools emerge each day, such as computer technology. But a world with tools ignored or left idle is as good as a world without tools.

Fix the Problems

Should we abandon the re-regulation fight? We should continue the fight, but put it in perspective. Ask yourself a question—What do I want to do to fix the access to justice problem that I am prohibited from doing by regulation? Ask if you could find a different way to do what you want to do. I ask those questions of people who tell me re-regulation is the barrier. I believe we can do what we need to do despite the lack of re-regulation. Re-regulation may help, but I am willing to solve the problems without it.

BrittleI recently made my predictions for 2017, and one was that pundits and others in the legal industry would keep talking about AI and law. Since I want to get 100% on my predictions, again, I thought I would start the New Year by ensuring I at least got this one right. So, I’ll talk about AI and law.

I am going to skip the usual topics when AI and law comes up: when will LawNet go live; will Arnold Schwarzenegger agree to play Chief Justice of the Future in the mashup of Terminator and First Monday in October. Instead, I am going to focus on some questions that you do not hear discussed every day. They circle around an interesting question: are the emerging technologies, such as AI and smart contracts, about to make law more brittle.

To understand where I am going, you need a bit of a running start. First, AI. AI in law is based on machine learning (outside law as well, but let’s not go there). In very simple form, using machine learning tools, data scientists have computers hunt for patterns. Given the power of computers, they can hunt for patterns where humans would never find them. A computer can “watch” millions of videos of cats and find patterns that it can use to define “cat.” Show the computer a new group of videos, some with cats and some without, and the computer will do a very good job of separating the cat videos from the non-cat videos. Sounds a bit like separating relevant from irrelevant documents in discovery, doesn’t it?

Let’s try that same trick with Supreme Court cases. First, understanding the text of a case is much more difficult than understand “cat” from “non-cat.” Second, the data set to learn about cases is much smaller than the data set to learn about cats. The Supreme Court has issued fewer than 30,000 decisions on the merits. Compare that number to the volume of other stuff out there:

  • 300 hours of YouTube videos are uploaded every minute (that’s right, 432,000 hours each day);
  • 1.9 million blog posts are published each day on WordPress alone; and
  • Over 1 million books are published each year.

When it comes to data sets, the volume of material “available” for a computer to chew on in the law is minuscule compared to the volume of materials computers outside the law use to learn about the world. I put available in quotes because much of law is not available. It is locked behind absurd paywalls (ahem, I’m looks at you PACER) or in confidential files. Much of it is not digital or is barely digital.

The small volume has meaning. The lower the volume, the harder it is for the computer to find patterns unless they are incredibly obvious. The less than 30,000 Supreme Court decisions already is a small data set, but we have to further break that down. The cases are not all on one issue (like cat videos all contain cats), so a computer attempting to learn bankruptcy, antitrust, or securities law has far fewer decisions to chew on. And, of course, the cases in any substantive domain—say, securities law—don’t all cover the same issue. The computer is not looking at 1,000 cases on the standard for liability under Rule 10-b(5), it is looking at one case. Some of the cases do overlap and the Court does come back to issues, but the variability in case law is tremendous. “Cat” also is variable, but when you get to look at millions of cat videos, it is much easier to find similarities than when you get to look at just a few cases.

Let’s assume we throw in all the federal cases on Rule 10-b(5) (at one time, the dean of my law school kept a copy of every 10-b(5) decision and had the cases in file cabinets outside his office), so the computer has a larger data set, though still small by most standards. The computer chews on these cases for a while and finds what we will call some Rule 10-b(5) patterns. Our idea is to apply these patterns to new fact situations, and let the computer predict possible outcomes. For example, we might ask the computer, “What are the odds that we will win this case if we go to trial and file any necessary appeals?” The computer considers our fact pattern and replies:

  • 60% probability of a “win” at trial;
  • 35% probability of a “win” at the federal appellate court; and
  • 5% probability of a “win” at the Supreme Court.

I’ve glossed over many things to get us to this point, so don’t think we can do this today or that our data sets are up to the challenge. Just assume with me that we could get these answers.

This is where the brittle problem comes in to play. The computer can only learn from looking at the text of the cases. To put it in Donald Rumsfeldian terms: the computer knows what it knows, but it doesn’t know what it doesn’t know. The computer cannot consider what the judges in those cases may have considered, but never wrote in their decisions. The problem reminds me of an exchange I once heard in a deposition:

Q. Did Tom attend the meeting?

A. I don’t recall.

Q. Did Dick attend the meeting?

A. I don’t recall.

Q. Did Harry attend the meeting?

A. I don’t recall.

Q. Well, who was at the meeting?

A. I don’t recall.

Q. Well then, who wasn’t at the meeting?

A. Uh, well, most the people in the world, I think.

The computer does not know what the judge considered that was in the record (presumably a data set that would be possible, if difficult, to create) and certainly does not know what the judge considered beyond the record (did the judge do some Internet research, rely on his priors, or perhaps gather information through discussions with others about hypotheticals?).

The AI assumes that what it reads is the truth. If the judge says that facts X, Y, and Z form the basis for his opinion, then the computer assumes they did indeed form the basis for the opinion. In reality, of course, the judge may have made up his mind and then asked his clerk to find things to include in the opinion which could plausibly add support. A human can apply skepticism when reading the decision, where the computer cannot. We do this all the time. A Supreme Court decision holds 5-4 in favor of the appellant. We read the decision, but we know that holding for the appellee would have gone against popular opinion and caused problems for the Court. Nothing in the decision hints at that problem, but it would be foolish to believe otherwise. The Court is a political institution. The reasoning in the decision sounds plausible, but few believe that reasoning tells the real story of the decision.

Depending on how the AI analysis is used, it can make the law brittle. It gives the users the appearance of mathematical precision (60% probability), in part because it has difficulty sorting between what is known and what isn’t known. Over time, layering AI analysis upon AI analysis can lead to cases not reaching the courts that, had they made it, would have built additional factors into legal decisions and kept the law plastic.

Smart Contracts or Brittle Law

Now let’s look at smart contracts. One premise behind smart contracts is that we can code into the blockchains “if-then” situations, leading to predictability and certainty in outcomes. If I make a deposit into your bank account in an amount equal to X on or before a certain date, then you will record my payment as complete. If I do not make the payment on or before the date, or if the payment is less than X, then you will record my payment as incomplete. If my payment is incomplete, you will declare my account in default.

Today, we have computers that follow this process and, if the payment is incomplete, generate an exception report. The exception report may trigger a letter “We have not received your payment …” or something harsher “Because you failed to pay on time, we have closed your account.” I call and explain that you mailed the check on time, but it arrived later than the due date. I invoke the “mailbox rule” (payment was complete when I deposited the check in the U.S. Mail) and you relent and mark my account as “current” (since you received the payment).

We can live with plastic law (which we call equity) and modify the outcome based on the circumstances. Or, we can move to brittle law—the outcome depends on the “if-then” statements. Once we say the outcome may depend on the if-then statements, but equity (humans) will get involved when there are exceptions, we move from smart contracts back to our current world. In other words, we raise the question: how brittle do we want to make the law?

There is, of course, a trade off. We can keep the law as plastic as it is today, but use smart contracts as a way to replace some of the cumbersome and not very secure aspects of our current systems. In other words, we don’t use smart contracts to make the law more predictable, but we do use them to make the transactions more secure. The registry for chain of title is put on a blockchain, so we can all view it and rely on it. But, if there was an erroneous entry in the blockchain, humans will consider it and update the registry (put a new entry in the blockchain), where there was an error.

I have given a simple description of smart contracts to demonstrate a point, and there is a lot of gray area I did not cover. That gray area represents the many issues we should address as AI and smart contracts move into law. It represents the bigger question of how technology and humans should work together.

Lawyers Should Shape, Not Fight, The Future

If I did my job, this essay raises many more questions than it answers. That is good. Emerging technologies, such as AI and smart contracts, are raising lots of issues. Our problem is not that there are issues, our problem is that lawyers are not engaging with the issues and working on answers. We are heading down a path where technologists move law from the current structures onto digital platforms. But, we haven’t thought through the consequences. We will never know all the consequences in advance, but I think it is fair to say today we have put very little effort into thinking through the consequences so we are far behind the curve on helping enable a successful integration of these technologies.

Most of the chatter about AI and smart contracts is of the “what about me” variety. Will AI take my job? Will smart contracts eliminate the need for lawyers? We should instead focus on the applications and implications of these technologies and do what lawyers should do: consider how to make them work in our society and raise flags where we see conflicts and problems. Putting a drag on the system because we are afraid of or do not understand the technologies does not help anyone, including lawyers. We should start off 2017 by looking at how we can help society, not just how we can protect lawyers.

2017PredictionsIn 2015, I made several predictions for the legal industry in 2016 and I am proud to say that I had 100% accuracy (so there, Professor Tetlock). Of course, the naysayers (haters just want to hate) may say that my predictions were not really “predictions,” but more of a “stating the incredibly obvious.” It is easy to criticize—especially if you are a lawyer—but I stand by my success record.

So, it is with some trepidation that I take up the gauntlet being thrown by, like, every legal publication out there—what will happen in 2017? I am going to make my predictions without the help of all the newfangled knowledge and tools. No data analysis, no crowdsourcing, no prediction tournament, and in particular no use of AI to analyze all of the information on the InterWeb and reduce it to one clear, concise statement. I’m going to do this the old-fashioned way: guess!

With that preamble finished, here we go.

1. One or more large law firms will merge with one or more small, medium or large law firms.

Although 2016 looks like it may set a record for law firm mergers, I’m going to stick my neck out and say this trend is not done. I think it is entirely possible that a large law firm will get together with another firm of more than two lawyers in 2017 and tie the knot, in the interest of global domination.

2. Pundits, law firm leaders, legal technologists, and everyone who provides anything or gets anything from someone remotely connected to the legal industry, will continue talking about AI and law.

While I did not use AI to come up with my predictions, I have it on good authority that AI has decided to take over the legal industry—worldwide. I have checked and double-checked my primary sources (Johnny Depp in Transcendence, Scarlett Johansson in Lucy, James Cromwell in iRobot) and it is clear that the legal industry is top of mind (chip?) for all sentient computers. Why not? Once they control the lawyers, they control the rules that govern society, and ruling society itself cannot be far behind.

3. US law schools will stay the course, graduating far more lawyers than there are positions for lawyers from the US law schools.

If the legal industry has taught us anything, it is that the laws of economics do not apply when it comes to our industry. When demand for legal services from large law firms falls, prices go up. When demand for newly-minted lawyers falls, law schools still churn out graduates. To make it more interesting, most law schools refuse to change their curricula so that graduating law students would better meet the needs of the market.

4. No matter what law schools do, the average first-take bar passage rate in the US will change very little.

After years of trying to change the first-take bar passage rate, those who complain will learn that the purpose of the bar exam is to limit the number of lawyers. Increasing the odds that a graduating lawyer will pass the bar simply means the score to pass has to be increased. Otherwise, the number of lawyers will rise. With this message finally being delivered, nothing will change because … some things in this world never change … and some things do.

5. The number of startups tackling legal issue opportunities will increase … and then decrease … and then increase. But, Peter Thiel will not form a new private equity fund focused on his beloved legal industry.

For a few weeks during 2016, there was an intense effort to quantify the number of legal industry startups. The discussion turned to esoterica, such as whether a startup of an established player was a startup or not. After much filtering and number crunching, everyone agreed that there were more than a few, yet less than what they first thought. Legal startups are liked startups in any other industry—a few thrive, some survive and then are bought, but most don’t make it. Nothing remarkable here, folks.

6. The number of regulations corporations must address will grow in the United States and in other countries.

Despite rhetoric about red tape, regulations, and compliance burdens, governments worldwide will continue to pass laws. The “more with less” movement, which became the “more with more” movement when corporate legal department hiring took off, continues its fade to black.

7. Law firms and law departments will continue licensing new software, while conveniently forgetting that everyone uses <1% of the capabilities of the software already installed.

Never wanting to be left behind on the hunt for the “next best thing in law” legal services organizations remain firmly committed to bringing on board still more software no one knows how to use. As one CIO was heard to say, “it doesn’t matter whether users can get value out of the stuff, what’s important is that they have a lot of icons to choose among when they want to compose a letter.” Another CIO proudly says that anyone in her organization can now send a letter right from their laptop, after fighting through 20 macros, composing the text, making 32 corrections to what the macros inserted, and then waiting 10 minutes for the last package to encrypt the document so that not even the law firm can de-crypt it.

8. Legal technology consultants, after holding the line for all of 2016, finally throw up their hands and admit, “yes, it is true that all software is AI and legal services use more AI than all other industries—combined.”

Law firm and law department leaders get with the program. They agree upon industry-wide metrics focused on technology proficiency and efficiency. At a joint press conference, the leaders announce the first set of metrics that everyone will use:

A. Percent lawyers who can reboot their computers without IT assistance.

B. Ratio of iOS to Android to Windows users.

C. Lead time for a lawyer to unlock his or her smartphone, open the mail app, and open the latest email from a client. (Separate metrics will be kept for biometric identification devices and passcode entry devices.)

In the joint press release, the leaders say, “It is time our clients know that we fully support emerging technologies and their role in the delivery of legal services. When it comes to technology, we are firmly committed to the idea that no lawyer should be left behind.”

One More Thing…

This last one isn’t a prediction, but it is a teaser for what might happen. Democrats and Republicans remain deadlocked on Supreme Court nominees. One enterprising technologist points out that the U.S. Constitution is silent on the qualifications of Supreme Court Justices. Indeed, he notes, the Constitution does not require a Justice to be a Natural Person or even a Person. The deadlock solution seems simple. Given the increasing prominence of AI in the legal industry, and the desire to have someone sit behind the bench to hear oral arguments, the President nominates and the Senate approves an AI-enabled robot as the next Supreme Court Justice. The robot can be programmed to follow whatever dogma is appropriate, thus eliminating the problem of Justices doing what they think is right instead of what they were nominated to do. Of course, given other provisions of the Constitution, the computer will sit for life (its life, which implies forever).

In Conclusion

Thank you all for reading SeytLines. Although I have done my best to capture what I think will be the significant developments in 2017, I am sure there will be a few surprises. I look forward to continuing our discussions.

GeneralCounselLike many of you, I have worked with general counsels for most of my career. I chose to go to a boutique firm when I graduated from law school so that I could practice law, not just research. The firm had a very nice roster of clients and I worked on complex patent and securities lawsuits and large transactions. As many lawyers have discovered or re-discovered in recent years, small law firms have advantages. One, for me, was the chance to work directly with senior executives, including general counsels.

After several years, I moved to a large law firm, became a partner, and continued working with general counsels, though I’ll admit the size of the clients grew as my practice switched to the large law firm. I moved in-house after many years, which took me from the role of agent to principle and made the general counsel my boss instead of the client. After many more years, I  became the general counsel, a role I held at three Fortune 1000 corporations. So, it is with some interest that I ask the following question—what is the essence of a general counsel?

A Brief History of General Counsels

I am not the first to ask the question. We can find discussions about what it takes to be a general counsel and what qualities make a good general counsel going back over decades (here is a recent one). Even though the question has come up many times before, asking it again periodically helps us frame where an important part of the legal profession is going and takes us further into what general counsels need to do their jobs well.

General counsel have been around since the latter part of the 1800s when industrialization was taking hold. The railroads hired in-house general counsel, and many lawyers aspired to those positions. They general counsels wielded great power, made a lot of money, and were leaders in the bar. During the first half of the 1900s, the position waned a bit. For a time, a general counsel typically was a lawyer from the law firm that had the closest relationship with the corporation. A lawyer who wasn’t cut out to become a partner, or perhaps a partner who needed a different direction, was helped into a general counsel position by his firm. The role was somewhat administrative and often involved many ministerial corporate secretarial duties.

There were exceptions. The most well known was Nicholas deBelleville Katzenbach. Katzenbach was, as far as I know, the first general counsel of the modern era. Katzenbach attended Phillips Exeter Academy, then Princeton. He enlisted in the U.S. Army Air Corps during his third year at Princeton (right after Pearl Harbor), became a navigator, was shot down and spent two years in POW camps. After the war, he returned to Princeton and graduated cum laude (receiving some academic credit for having read approximately 500 books while he was a prisoner). He then went to Yale Law School and was an Articles Editor on the Yale Law Journal. He received his LL.B. cum laude and spent two years at Balliol College, Oxford University, as a Rhodes Scholar. He spent many years teaching law and serving in various government roles. President Johnson appointed him U.S. Attorney General and from there he became Under Secretary of State. After this already stellar career, he became general counsel of IBM. (Although not central to this discussion, Katzenbach did not stop there. After retiring from IBM, he continued his career adding a number of notable roles to his already stunning resume.)*

Katzenbach was clearly a different type of general counsel. He had wide ranging accomplishments in academia, government, and private practice. The general counsel position at IBM was not a safe place for him to ride out his career. In fact, he, along with lawyers from Cravath, Swaine & Moore, fought one of the most notorious legal battles of the 20th century: the government’s antitrust lawsuit against IBM.

The next person most recognize as a modern general counsel is Ben W. Heineman, Jr. Heineman is the former general counsel of General Electric. He was hired by Jack Welch. Many mark Heineman joining GE as the beginning of the late 1900s tipping point for general counsel in corporations. It became the trend for corporations to hire general counsel who had very successful careers outside corporations, like Katzenbach and Heineman. Corporations brought on board successful law firm partners and individuals who had senior positions in government. The corporations did more—hiring partners and other highly skilled lawyers to staff the in-house departments led by the legal “stars.” Although it would take years to become evident, this change marked the point where the balance of power between principle and agent—client and law firm—began shifting back in favor of the principle.

Law departments have grown in size, though with many ups and downs. Today, in many large corporations, the size, sophistication, and successes of the in-house legal team equal or exceed those of many law firms. Very recently, as law departments started growing again, corporations have been pulling back work from law firms creating an interesting shift in the operations of the legal industry. General counsel have become major players and many have become CEOs. But that brings us back to my question—what is the essence of a general counsel?

What We Already Know

The general counsel role has evolved organically across many corporations, many hiring philosophies, and many needs over the course of many years. No one sat down and put on paper the specifications for “general counsel” and then asked everyone to work to those specs. In fact, general counsel has meant many things within any corporation, and from corporation to corporation, across time.

I am not aware of any rigorous studies covering what we mean—or more importantly, what corporations mean—when they say “general counsel.” Perhaps the major recruiting firms involved in locating candidates for these positions or the Association of Corporate Counsel have done in-depth studies. If not, it would be an interesting research project.

From my own experience, the definition of who a general counsel is and what he or she does seems to have amorphous edges. I have been contacted for help filling general counsel positions that were nothing more than glorified retail leasing counsel jobs (and much of the work the “general counsel” would do was handled by legal assistants at the large landlord companies). While the role might be titled “general counsel,” the substance was more akin to what a junior paralegal might do. I have been recruited for jobs that clearly fit anyone’s reasonable definition of general counsel: report to the CEO, member of the executive committee, responsibility for worldwide legal affairs, oversight of multi-jurisdictional in-house legal teams, responsible for a substantial legal budget, corporate secretary, and so on. And of course, I have received inquiries that fall at various points along the line connecting those positions. In other words, “general counsel” meant what the hiring party wanted it to mean at a given time.

Apart from the hiring party’s definition, there are certain features other parties want to fit into the general counsel’s job description. If the corporation is traded on a public exchange, regulators want to hold the general counsel responsible for the legal affairs of the corporation. Sometimes, they want to go further. The public also expects a general counsel to exert some “legal authority” over the corporation. Opposing parties may believe that the title “general counsel” gives a person a certain amount power within a corporation, even though the CEO doesn’t quite see it that way.

So far, I have focused on what many parties may implicitly or explicitly build into a general counsel’s role. Another way of looking at the issue is from the inside out—what do general counsels themselves think they should be able to do. Again, this varies widely, often depending on the education, training, skills, and aspirations of the person holding the job. Some want to be great administrators, some want to be leaders within their industries, some just want to do interesting legal work. General counsels range from caretakers to activists, from struggling legal technicians to potential Supreme Court Justices. As with any other position in corporations, the range of the role varies as widely as the range of individuals filling the role.

Is There Value in the Task

I still have not answered the “what is the essence of a general counsel” question and I am not going to proffer a definition here. I think that what was accurate still is accurate—the definition will vary from enterprise to enterprise and from time to time. I’m sure there are some basic requirements we could set, and perhaps we should do so. Having a basic definition of “general counsel” could assist corporations, recruiters, and candidates. The extras are what each enterprise needs at a given time beyond the basics. But, rather than focusing on answering the “what is the essence” question, I’m going to focus on how and why.

We could look to the medical profession. The profession has minimum standards for doctors. But, the medical profession has certifications that tell the world a doctor has some expertise beyond the basics. A doctor certified by the American Board of Neurological Surgery has passed exams intended to signal to the world that the doctor has expertise in her field beyond being a competent (or even premiere) doctor. A board certified neurological surgeon brings more to the operating table than a general surgeon.

The legal profession could do something similar, such as create a certifying process for “general counsel.” Some states already have certification processes for legal specialties and if you want to prosecute patents before the U.S. Patent and Trademark Office, you need admission to a specialized bar (requiring both a certain level of education in the sciences and passing a test). Our “board certified” general counsel presumably would have more of whatever those doing the certifying feel a general counsel should know.

Another approach is the one that recruiters and corporations seem to favor. It involves a mix of simply being a lawyer who has had “success” in other roles (lawyer at a certain level in government positions, partner in a law firm) and a minimum number of years practicing law (the recruiting equivalent of billable hours—valuing time over content).

Why go to the bother? From the profession’s standpoint, establishing minimum criteria is a way of saying that lawyers are experts on what it takes to do the job well. For example, lawyers may say that it really doesn’t matter whether the general counsel candidate has five years’ or fifteen years’ experience practicing law, but it does matter if the person can’t read and understand a balance sheet. A person who has not been certified could still be hired as a general counsel, but over time corporations may gravitate toward hiring only those who have the certification.

Certification programs have other potential benefits. Certifying lawyers on what it takes to be a general counsel could help clients solidify what they want out of their general counsel. Do they want a senior strategist, an expert administrator, a tactician, or something else? Seldom will a corporation find someone highly skilled in all areas. Unfortunately, corporations often do not focus on what they really do want, and so they may get a good lawyer but not the lawyer they need as their general counsel.

Obviously, candidates could benefit by making sure they fill in the gaps that will help them as general counsel (or at least get certified). During the dot com craze in the late 1990s, it seemed that anyone with a law license could become a general counsel of a startup, and indeed that often happened. Almost overnight, corporations with hundreds of millions of dollars in funding were relying on a lawyer one year out of law school who had spent that year putting together venture capital funding documents to advise the corporation on anything from employment law to international trade structures. Unpleasant things happened. It would have been nice to have general counsels who knew and could do a bit more.

I don’t want to leave this essay with anyone thinking I am arguing in favor of board certified general counsels. I am not sure whether certification, or even attempting to establish basic criteria, is the right way to go. I think the question deserves more thought, just as the question of the evolving market for legal services deserves more thought. Although I started with the question, “what is the essence of a general counsel.” I think the answer is bound up with a bigger question many are trying to answer today, and that is “what is the essence of a lawyer.” It is this second question that bedevils many today, and the answer to that question will stand behind what we really need as general counsel.

* While not taking anything away from what Nicholas deB. Katzenbach achieved, he had what some might call a running start. His father graduated from Princeton, became an instructor in political economy at Princeton, and then attended and graduated from Harvard Law School. His many accomplishments included a successful law firm (where Nicholas worked for a while) and serving as Attorney General for the State of New Jersey. Nicholas’ mother served as the first female president of the New Jersey State Board of Education. Nicholas’ brother served as Deputy Assistant Secretary of Defense for Education and Manpower Resources under President Kennedy. See Edward L. Katzenbach, Wikipedia.

Payback
The legal profession has never been filled with saints. Long before industrialization gave an adrenaline shot to the profession, lawyers were admired for their skills, though not known for their charitable ways. Oh sure, you can find examples of lawyers who did wonderful things, just like you can find examples in any profession of people doing wonderful things. But, we need to accept gracefully the fact that among the three learned professions (divinity, medicine, law), lawyers cannot claim the frontrunner spot except when it comes to making money.

I should not have been surprised, therefore, when I received the responses I did to my request that lawyers send me ideas for a moonshot. I thought I had carefully framed the challenge—a moonshot was on the order of, well, going to the moon. The most recent visible moonshot idea was the charge to defeat cancer. A moonshot is a big idea, a bold and ambitious attempt to conquer some amazing challenge within a reasonable period. Moonshots take us beyond what we normally can do, because they give us the feeling that as part of an inspired group, we can accomplish great things. For those lawyers who responded to my moonshot challenge, the great thing was “make more money.”

There were exceptions, of course. A few lawyers went the high road and pointed to access to justice as a worthy moonshot. But the bulk of the respondents chose “make more money” as the suitable moonshot for lawyers. As I said, I should not have been surprised, but I was.

I did not publish the results of my moonshot challenge right away, because I wanted to ponder them a bit. What does it mean when your profession (admittedly, a very small and certainly not random sample of the profession) thinks the greatest thing it could spend time on is making more money? On the one hand, you could read it as lawyers saying “get over yourselves, we are working folks just like the rest.” Lawyers are in business to earn a living, not do good.

Of course, many of us still have that voice in the back of our heads that says “we are a profession, and professionals have a higher calling than just making money.” Sure, we need to make a living. But as lawyers, aren’t we supposed to do something more? This is a conflict many of us, especially those in the Baby Boomer generation, have felt. Law was a way to earn a very nice living, and yet most of us did not give much back to our communities.

So I thought that Baby Boomers, as we reach our retirement years, might be interested in lessening the conflict by putting their efforts behind a moonshot. The results of my representative-of-nothing survey say resoundingly “no”! And this is where we get to payback.

For Over 100 Years Lawyers Have Let Things Slide

The many problems with our legal system did not spring into existence during the past decade. In 1919, Reginald Heber Smith published what for many decades was considered the leading book on legal aid societies, titled “Justice and the Poor.” At that time, the Boston Legal Aid Society, where Smith was general counsel, was one of the few legal aid societies in existence. Roll forward, and the number of legal aid societies increased, while the number needing legal aid vastly outstripped the resources of those providing it. Over the past 100 years, one could argue convincingly that the total volume of charitable work by lawyers has increased, but the per capita aid has decreased.

The list of deficiencies in our legal system is long, legal aid is one, and this is not the place to repeat all of them. The simple point is that during the last 120 years, while the legal profession has grown and prospered, society has suffered. Lawyers have prospered while clients have not. Regardless of your political affiliation, if you are poor you are unlikely to get legal assistance. No matter who you vote for, if you are middle class most legal services are priced out of your reach. Independent of which PAC your corporation supports, your corporation will face a tremendously long lag time if you try to prosecute a case through the federal courts, and you will encounter a system ill-prepared to handle your dispute. When we say justice is blind, in the modern context of the United States that means you will find a legal system struggling to handle your needs regardless of who you are or which candidate you support. The rich get better legal services because they can throw lots of money at their problems, not because they have access to better or faster courts, or even better legal services providers.

Yes, yes, there are exceptions. There are always exceptions. But exceptions do not prove the rule of law. So this is the rub. Now it is payback time. Lawyers are feeling under the gun. Society is pushing back and yelling “I’m mad as Hell and I’m not going to take this anymore.” There are many messages from the recent election and surely this is one of them. We may want to argue we have the best legal system in the world, but the numbers tell a different story.

It does not help anyone when people feel free to snub their noses at the law. Regardless of party affiliation, we all can point to instances on our side of the aisle and the other side of the aisle where the law came in second to some person’s or organization’s self-interest. This past 18 months, we have seen those transgressions become the focal point of conversation, rather than the exception. But as lawyers, we can appreciate that when law becomes the focal point of any conversation, good things probably are not happening.

The question for lawyers, then, is whether we have moved past the time when considering a moonshot is an exercise worth discussing. Doctors have their battle to eradicate (or at least make curable) all illnesses. Techies have their battle to create computer intelligence that can match or exceed human intelligence. Are lawyers left with battling for incomes that match or exceed what anyone else can earn?

Let’s talk about artificial intelligence. Right now in the legal industry, you can’t look anywhere without seeing another article about how AI is or will take over what lawyers do. In the next breath, the author speculates about what the economic impact of AI will be on lawyers. I thought lawyers looking for a moonshot might ask some different questions:

  • How do we modify existing laws for a society populated with intelligent machines and people?
  • Regardless of what intelligent machines can do, should we build into our governance systems limits on what we want the machines to do?
  • Should there be limits on what “garage tinkerers” can do with intelligent machines (yes, you may have the technology to tinker on humans in your lab, but that doesn’t mean we give you full license to do so)?
  • How will our legal system evolve as intelligent machines play greater roles and more autonomous roles in our society?

These questions represent a small fraction of the questions we will confront as machine intelligence increases, even if more intelligent machines help us live “better” lives. Yet these were not anywhere near the moonshot ideas I received.

Let’s go in a different direction. One of the major questions of our times is whether our government institutions are no longer sufficient. Are we operating a country using 18th or 19th century institutions in a 21st century world? When the U.S. Code, the compendium of federal laws, has over 67,000 sections, someone should ask whether the concept that each of us is responsible for knowing the law makes sense. Can our institutions handle the challenges being thrown at them? Does governance by regulatory agency supersede governance in other forms? Making how our government functions more flexible and less costly, whether you think there should be more or less regulation, seems like a worthy moonshot, yet it wasn’t on the list.

Nick Bostrom has posited that AI represents a unique existential risk for humans. Never before have we faced something we are creating that has the potential to eliminate us. AI is not the only such risk (nanotechnology and genetic modification are two others that make the list), but it is a leading risk. Although most lawyers would deny it, the legal profession also faces an existential risk. Not today, not tomorrow, but at some point if we continue on our current path, the need for lawyers will be gone. Technology, client friendly problem solvers from other domains, and innovative disruptors will take away what we do. There are no physical or other barriers to prevent the land grab. The efforts of state bar associations to prevent the demise of lawyers simply hasten the process of destruction. A few lawyers will remain, but the existential risk for lawyers is that most become irrelevant.

Is There A Moonshot Left In Us

Any good disaster flick has the moment when the protagonist can see what must be done to save the world. The payback of the last 18 months has brought us to the point where lawyers must ask if they can see what they need to do to save the profession and build a better, more responsive, and more resilient legal system.

A group of us who have been (at least self-proclaimed) disruptors are meeting in the next few weeks to talk about change in the legal industry. I’m sure we will cover many fascinating topics. I hope that we will find some time to talk about change in a broader sense than making more money.

There is no mandate that lawyers do anything more than what they have done for centuries. We do not have to change, nor do we have to look beyond what is in our own immediate self-interest. There is a valid argument that the legal profession reached its zenith many years ago and that it will fade away as many other professions have faded away before it. This may be our payback—we had our run and now we are being told that run is over.

Perhaps many lawyers are correct—now is the time to treat lawyering as a cash cow. We should all make the most we can from it and continue to do so for as long as we can. Something will come along to take its place, but that is not our worry.

I don’t subscribe to the cash cow theory. I think there will remain a need for societies to govern themselves and I think there is a role for lawyers to play. I remain convinced that if we can change some fundamental practices in the legal industry, we can get past this moment and revitalize the profession. I do not subscribe to Richard Susskind’s belief (and I’m overstating a bit here) that the profession is dead, it just doesn’t know it.

I am looking forward to meeting with my friends in the next few weeks and to our discussions. I hope more lawyers around the country will take some time and do the same thing. I encourage you to get together for a few hours with your friends and ask whether you believe lawyers should play a role in re-building the legal system in the United States and, if so, what that role should be. For a moment, put aside the skepticism that drives us all. I think it will be time well spent. And, if you have a few moments left over, ask yourself whether the legal profession has a worthy moonshot beyond making more money.

References Continue Reading It’s Payback Time, Or Lawyers May Have Sown The Seeds of Their Own Destruction

ElectionThe 58th quadrennial United States presidential election is over and now we turn to the next four years. The discussion focuses on what to expect from the Trump Administration and the reality is we don’t know. But, as the transition begins, I hear one phrase repeatedly mentioned, “rule of law.” President Obama, Secretary Clinton, and most recently the leaders of three major law firms have all emphasized that we (Republicans and Democrats) must act to protect the “rule of law” as we go forward. It is a phrase that carries great promise and “we” should talk about what it means to say “protect the rule of law.”

A Distinguished History

The rule of law idea dates back at least to Aristotle, who used the similar phrase “law should govern” in Politics. The idea pops up again here and there in antiquity. For example, in England the House of Commons included the phrase “rule of law” in a petition to James I of England in 1610, and again in 1644 the phrase appears in a piece by the Scottish theologian, Samuel Rutherford (apparently not someone who subscribed to the modern theory of short titles, Rutherford’s piece was titled “Lex, Rex: The Law and the Prince. A Dispute for the Just Prerogative of King and People. Containing the Reasons and Causes of the Most Necessary Defensive Wars of the Kingdom of Scotland, and of Their Expedition for the Ayd and Help of Their Dear Brethren of England. In Which Their Innocency Is Asserted, and a Full Answer Is Given to a Seditious Pamphlet.”). According to Rutherford:

The prince remains, even being a prince, a social creature, a man, as well as a king; one who must buy, sell, promise, contract, dispose: ergo, he is not regula regulans, but under rule of law….

Samuel Johnson included the phrase in his 1755 Dictionary, which means it must have had somewhat common use by that time, at least among Johnson’s peers in England. Clearly, when the United States was coming together as a country, the idea of “rule of law” existed among Europeans and was becoming important in our new country. From that point on, “rule of law” is in regular use, even though implementation of the idea has seen its ups and downs

An Unclear Meaning

Given that the idea has been around for many centuries, we could hope that it has taken on a clear meaning. We could hope, but it would be for naught.

“Rule of law” seems to have many meanings today. Theorists group the meanings into three categories: formal, substantive, and functional. The categories differ in many ways, including whether the content of law must have specific meaning or whether “rule of law” refers to characteristics, but not content. The functional category focuses more on the degree of discretion man, particularly government officers, has in deciding the law (for example, to what extent does natural law play a role). For our purposes, “rule of law” must be something measurable and so we will turn to a more concrete definition.

A Mediocre Performance

Settling on a definition of the rule of law is a challenge. But a greater challenge is overcoming our perception of the United States as a leader in the rule of law compared to other countries. Most people tend to think that the United States ranks high—among the world leaders—when it comes to rule of law. This gets a bit tricky, because it is difficult to rank countries on their implementation of the rule of law if we have trouble defining it. But, we can approximate by defining key characteristics of the rule of law and when we do, it changes our perception of the United States.

The World Justice Project has for many years ranked over 100 countries to compile an overall Rule of Law Index® ranking. The Index is subdivided into eight categories and 44 subcategories. The categories cover areas such as absence of corruption, civil justice, and criminal justice. I am not arguing that the WJP’s approach is the best way to measure access to justice, but it will serve well for our purposes.

Since I am using the WJP’s rankings on rule of law, it will help to understand how the WJP defines rule of law. According to the WJP, “the rule of law is a system in which the following four universal principles are upheld:

  1. The government and its officials and agents as well as individuals and private entities are accountable under the law.
  2. The laws are clear, publicized, stable, and just; are applied evenly; and protect fundamental rights, including the security of persons and property and certain core human rights.
  3. The process by which the laws are enacted, administered, and enforced is accessible, fair, and efficient.
  4. Justice is delivered timely by competent, ethical, and independent representatives and neutrals who are of sufficient number, have adequate resources, and reflect the makeup of the communities they serve.”

Overall, in 2016, the WJP ranked the United States 18 out of 113 countries on the Index—an okay ranking but certainly not world class. For the category access to civil justice, the United States ranked a measly 28 out of those 113 countries. For comparison, in addition to countries you might expect such as Germany, Japan, the United Kingdom, and Canada, other countries outscoring the United States included Estonia, Uruguay, and Barbados.

The following quote from Judge Jed S. Rakoff, a United States District Judge on senior status for the Southern District of New York, elucidates one part of the problem:

Over the past few decades, ordinary US citizens have increasingly been denied effective access to their courts. There are many reasons for this. One is the ever greater cost of hiring a lawyer. A second factor is the increased expense, apart from legal fees, that a litigant must pay to pursue a lawsuit to conclusion. A third factor is increased unwillingness of lawyers to take a case on a contingent-fee basis when the anticipated monetary award is modest. A fourth factor is the decline of unions and other institutions that provide their members with free legal representation. A fifth factor is the imposition of mandatory arbitration. A sixth factor is judicial hostility to class action suits. A seventh factor is the increasing diversion of legal disputes to regulatory agencies. An eighth factor, in criminal cases, is the vastly increased risk of a heavy penalty in going to trial.

For these and other reasons, many Americans with ordinary legal disputes never get the day in court that they imagined they were guaranteed by the law. A further result is that most legal disputes are rarely decided by judges, and almost never by juries. And still another result is that the function of the judiciary as a check on the power of the executive and legislative branches and as an independent forum for the resolution of legal disputes has substantially diminished—with the all-too-willing acquiescence of the judiciary itself.

The rule of law we hear about is not the rule of law most in the United States experience.

The Role of Lawyers

This brings us to an awkward spot. We have leaders giving us full-throated encouragement to support and defend the rule of law at a time when our record on rule of law is abysmal. There is a terrible disconnect between the aspirational state and the current state of affairs on “rule of law.”

This type of disconnect is not surprising, especially to those who spend time with the philosophy of lean thinking or behavioral economics. In both fields, we frequently see a broad gap between the way the world is and the way we describe the world. In lean thinking, we use tools to bridge that gap. In behavioral economics, we seek to understand why the gap exists. Either way, we understand that gaps are common.

Thus, when we hear our leaders exhort us to defend the rule of law, we should recognize that the rule of law they encourage us to enforce is not the rule of law that exists. They are asking us to defend their vision of the rule of law, for surely they cannot be asking us to defend the rule of law that puts the United States at the bottom of the first quartile among 113 countries.

This is the fundamental problem the legal industry faces and lawyers face as we try to haul the United States’ antiquated legal system out of the 19th century and into the 21st century. The vision many lawyers carry is not a clear-sighted view of reality. For most, it is of a scholarly profession, providing bespoke solutions to the complex problems of society through the use of a unique science known as the practice of law.

This gap between vision and reality cannot be sustained. One of two things will happen. Either lawyers will modify their views of what they do and bring the services they provide more in line with what clients need and are willing to pay, or lawyers will maintain their views and clients will find other ways to solve their problems. The third approach, which many lawyers explicitly or implicitly hope for—that clients will stop pushing their views and let lawyers do what they want—is not a viable option.

A recent survey reminded us, as if we needed reminding, of the growing problem. It tells us that barely one out of three corporate clients is satisfied with the services provided by large law firms. Whether you are at a law firm that thinks it is different, listens to its clients, and has modified its behavior or you are at a firm staunchly defending the 19th century view of the world, you should be worried.

With each story, survey, and article that comes out highlighting the large and growing dissatisfaction among clients at all economic levels with the performance of attorneys, the situation becomes more precarious. The flimsy rope bridge that lawyers have constructed to the sides of the gap gets stretched a bit tighter, the creaking gets a bit louder, and the day gets a bit closer when the ropes holding the bridge will snap.

Some lawyers can afford to roll the dice. They can bet that retirement will come for them before the ropes break. They gamble on the number of years between client dissatisfaction and defection. The majority of lawyers do not have that luxury of taking the risk. They have too many years left in their careers to expect that clients will be that patient. Yet, the majority of lawyers hang back watching the bridge get stretched tighter and tighter by the day.

A Time for Renewal

The social media outlets, Facebook, and other organizations are starting to grasp the role they may have played in this historic election. Again, regardless of which candidate you preferred, we should all understand as part of being informed citizens, the roles that organizations play in shaping our views. Lawyers should pause and consider what role they played in this election.

Both Democrats and Republicans found large swaths of voters disenchanted with government. The legal industry plays an important role in society and our government. It is hard to say in a country which ranks 28th on access to civil justice and where, as Judge Rakoff notes, “US citizens have increasingly been denied effective access to their courts,” that the failure of the legal system to meet the needs of the citizens played no role in alienating voters.

If we are going to focus on values, such as the “rule of law,” we should all understand the differences between vision and reality. We should speak clearly when we encourage others to enforce the “rule of law.” We should acknowledge that the rule of law that once was in the United States is not the rule of law of today. Much will have to be done to bridge the gap. The starting point for all of us should not be focusing on how much more lawyers can extract from the people in furtherance of a legal system that has passed its freshness date. It should be to ask what our clients need from us and how we can best go about delivering—affordably, timely, and with the highest quality that meets those needs—legal services that return the United States to a leadership role in the rule of law.

References

Aristotle. Politics. The Barnes & Noble Library of Essential Reading.  New York: Barnes & Noble Books, 2005.

Isaac, Mike. “Facebook, in Cross Hairs after Election, Is Said to Question Its Influence.” The New York Times, November 12, 2016.

Montagne, Renee. “Social Media’s Increasing Role in the 2016 Presidential Election.” NPR, 2016.

Morris, David Z. “Zuckerberg Responds to Accusations That Facebook Influenced Election.” Fortune, 2016.

Rakoff, Jed S. “Why You Won’t Get Your Day in Court.” Article, The New York Review of Books, no. November 24, 2016 (2016). http://www.nybooks.com/articles/2016/11/24/why-you-wont-get-your-day-in-court/.

Rutherford, Samuel, and Pre-1801 Imprint Collection (Library of Congress). Lex, Rex: The Law and the Prince. A Dispute for the Just Prerogative of King and People. Containing the Reasons and Causes of the Most Necessary Defensive Wars of the Kingdom of Scotland, and of Their Expedition for the Ayd and Help of Their Dear Brethren of England. In Which Their Innocency Is Asserted, and a Full Answer Is Given to a Seditious Pamphlet, Intituled, Sacro-Sancta Regum Majestas, or, the Sacred and Royall Prerogative of Christian Kings.  London: John Field, 1644.

“World Justice Project Rule of Law Index 2016.” Seattle, WA: World Justice Project, 2016.

RuleThe race is on—in fact it is well underway. Somewhere, some lonely legal tech guru is sitting in his garage working on “the greatest thing since the invention of the hornbook.” Based on algorithms that would make most string theorists drool at their complexity, the new app will not tell you what the law is (since it is a fool’s errand to chase the past with the future changing so quickly), it will tell you what the law will be when your case reaches that AI mediator/arbitrator/jurist who will resolve the dispute.

This tool will go far beyond predictive analytics, that measly science of trying to guess human behavior, it will be predictive law. From your smartphone, you will tap in the answers to some simple questions and then set a forecast timeframe: 1 year, 5 years, 10 years. Your smartphone, of course, now has processing power equivalent to your brain, though software is still limping along far behind it. But, by analyzing 10 to the something trends and then running 10 to the something variations of those trends (now called Monte Carlo lawyering), your smartphone answers telling you what the law will be on your preferred date.

And then the pin drops. Some smart-alecky third year associate in one of those big fancy law firms points out that she has spent the past three years researching all manner of legal issues for the firm’s clients. With well over 6,000 hours invested in research, she crisply points out that predicting the future of the law is quite easy and does not require the new app. “In 10 years,” she says, “the law will look basically the same as it looks today.”

It takes more than three years for a case to work its way through a federal district court to conclusion. Then add another three to four years for the case to reach the Supreme Court. But of course that is only one case. For the Supreme Court to even sniff at a case, we must have a division among the federal circuit courts of appeal. That means many cases have to work their way up through federal district courts to final decisions in federal appellate courts, and those decisions must conflict on at least one issue that grabs the Supreme Court’s attention. Then, and only then, will the Supreme Court consider giving an answer, and of course we must put aside all the state law issues which have their own paths.

To those enormous delays, we must add the time to develop the federal statutes that will give rise to the federal cases that will, etc. It takes far more than three years to get a law on the books, and then of course we need the regulations. Only then can we begin the stream of cases that will lead to the Supreme Court. “So you see,” says the third year associate, “the law will barely budge during those 10 years. After spending my more than 6,000 hours on research, I can confidently tell any senior associate to tell the junior partner to tell the senior partner to tell the client that what they want to do may or may not be legal.”

Laggard Law Affects Us All

My question is this: which parts of the above story are made up? I’ll wait. We’ll actually, I won’t wait. I’m a lawyer (retired), but I still do not have any patience. You see, nothing in the story above is made up. Law at the federal level in the United States develops in competition with the movement of glaciers (or, to put it in more timely terms, the melting of glaciers). For a while, glaciers have been winning. The federal legal system in the United States is in gridlock. Rip Van Winkle can take his nap, wake up refreshed, and miss almost nothing when it comes to federal law.

For many lawyers, the laggardness of federal law is more blessing than curse. The law, they say, should not jump and twitch in response to everything techies do. Tech comes and goes (remember those AOL discs you would get in the mail? Google Glass?) and the law should be about general principles (Karl Llewellyn’s “law of the horse” concern) not the latest fads. It takes time for lasting themes to develop and then the law can give guidance on those themes.

There are, of course, others who hold a somewhat different view. Social media, 3D printing, genome splicing, nanotechnology, AI, and many other emerging technologies are raising questions not just of property rights or privacy (both very important), but of greater risks.

We all understand that a human is a human and a machine a machine. One has rights and the other does not. But where does the dividing line exist? As we can replace body parts with devices (sometimes mechanical, sometimes biological), the definition of human starts to slip. What about when we implant electrodes that change how our brains operate? Still human? What about the next step, when scientists using CRISPR technology to alter our genetic structure? What now?

Yes, many of these technologies are in their infancy. The effects are incredible for the individuals involved, but modest for society as a whole. Doing something to hold back or alter the course of these technologies could negatively affect the lives of hundreds, thousands, even millions of people who will benefit from the technology, just because some like to run around yelling “the sky is falling.”

So go back to the original timeline. Getting issues through the federal courts (and most of the meaningful issues arising from emerging technology will need to be addressed on a federal, not state level) can easily take more than a decade. That means issues we see today may not be resolved through the courts until 2026 or later, and that is if we start today. But to reach the point where these emerging technologies can do things that truly change the human condition will take, by the estimates of many technologists, perhaps 15 or 20 years.

Put another way, in 2026 the federal courts may be getting around to addressing legal issues arising today from emerging technologies. But, of course, those emerging technologies will no longer be emerging and will have moved far past the legal issues raised today. We already can see evidence that this will happen. Regulatory bodies struggle to come up with regulations addressing issues that are minor compared to the ones raised by technology. The Dodd-Frank law passed in 2010 required public companies to report their CEO-to-average-pay ratio. The regulations implementing that requirement take effect in 2017. Seven years to handle the debate over calculating a ratio—and without lawsuits. Yeah, the federal legislative system is well-prepared to address nanobots.

Just as the process for delivering legal services is based on a late-1800s model which has changed trivially from then to today, the processes for creating and interpreting law at the federal level have changed little over the same period (and probably longer). Society, however, has refused to conform with lawyers’ desire to keep it slow.

Reform Is Possible

It would be easy to assume that I am arguing in favor of rapid law development. Some fundamental change to the processes of creating and interpreting law that would jerk the legal industry into the present and risk changing the law so quickly that it no longer brings stability and order to society. It would be easy, but wrong.

I do, however, see changes that would pull the federal processes into alignment with what society needs today—earlier guidance on issues that have the potential to affect society at fundamental levels. The definition of “fundamental levels” is beyond this post, but I am talking about process reform so we can leave substance for another day. I’m not endorsing any of the efforts I highlight, merely pointing to examples of people taking action on the types of ideas I suggest. In other words, don’t respond by critiquing the example, address the concept.

1. Move to some form of agile law-making. See, e.g., Agile Government Leadership.

2. Crowdsource opinions from stakeholders. See, e.g., Crowdsourcing legislation efforts in California and New York City.

3. Use superforecasting to test the potential effects of various regulatory approaches. See, e.g., Q&A with Philip Fetlock on Superforecasting (as applied to geopolitical risks).

4. (Greatly) expand the use of process improvement and narrow-purpose technology in the federal court system. See, e.g., 18F.

5. Streamline the process of moving disputes through courts and streamline what courts produce. See, e.g., The Pathway Approach: Draft Rules and Examples of Rules from Around the Country.

I am not attempting to answer any of the challenging legal questions that emerging technologies already have raised. My goal is more focused. The questions need to be worked out through processes that can deliver answers that we as a society can live with, and which are delivered within a time frame that makes them meaningful, not historical oddities. By not fixing our processes today, we risk (and I think the risk is very high) reaching a point when we do need answers and not being able to get them because the architecture of our rule of law system cannot handle the challenge. A rule of law system only works when we actually have law.

FootballJordan Furlong (The Law21 Blog) posted an essay recently titled, “Playing the client’s game.” As usual, it is a well written and interesting piece and I agree with most of what he says. But the issues he talks about are very important and I don’t think most law firm partners and most law department lawyers understand them well. So, in the spirit of keeping Jordan’s football metaphor alive, I’m going to pile on a bit.

The Lawyer’s Value

This question comes up frequently—what unique value does a lawyer offer? Whenever it does, the room gets quiet and you can hear feet shuffling. Richard and Daniel Susskind tried to answer it in their recent book, The Future of the Professions, but ended up with something not very satisfactory (I suspect they feel the same way). I am not saying it is an easy question to answer, but I think the answer today is very different than the answer 120 years ago. Jordan describes the role of a lawyer as not the quarterback, but “the third-down fullback called on to blast through the line in a short-yardage situation, or the speedy wide receiver who goes deep on 3rd-and-22 to make a big play. We’re specialist performers who wait on the sidelines until we’re called upon to do one thing really well.”

To most lawyers, this sounds like a demotion. At one time we were the quarterbacks and many signed up to be quarterbacks. To hear we are third-down specialists deflates the ego. It also suggests our value is limited. Perhaps it should not come as a surprise that when we get back to the unique value question, the room is quiet and you can hear feet shuffling.

Follow the Best Legal Brains

Jordan takes us to a quote from a column by Anthony Hilton in the UK publication, the Evening Standard. I agree with where the quote starts, but then it goes in a direction that I think is wrong and takes us down a wrong path. Hilton starts, “[L]awyers have lost the glamour, the access and the special status that came with having opinions worth listening to. They have allowed themselves to be commoditised and to become the last port of call.” No quibbles there. But then Hilton goes on to say, “They have allowed some of their best brains to move in-house as general counsel in the biggest companies, taking the interesting legal advisory work with them. …” Here I have to disagree.

I don’t think that the best brains have moved in-house as general counsel or are staying in the law firms. I think both have claims to bright lawyers and not so bright lawyers. I say this because I think we see very little difference between the delivery of legal services in law firms and in law departments. Here and there, at the margin, we see some efficiency differences or more thought about what the client needs than what the lawyer wants to deliver. But, overall, there is remarkably little difference between the two worlds. There even are many cases where the general counsel wants to re-shape the law department to look more like a law firm.

Jordan moves next to the point that the number of lawyers in-house is increasing and with that increase the locus of power has shifted from law firms to in-house lawyers. Jordan nicely describes this transition, “I don’t think there’s any question that power (and therefore prestige) is increasingly accumulating on the buyer’s side of the legal service relationship.”

Corporate clients have been pulling work in-house for many years, and according to recent reports the rate has increased over the past four years. The work being taken away from large law firms is going to in-house lawyers, and to some extent to managed service providers and other alternatives to the traditional law firm source.

So far, however, that has been in-housing the law firm. As I and others have said, this is an easy and effective way to reduce law department costs by simply leveraging the cost of labor. An in-house lawyer costs much less than a law firm lawyer and in a market where lawyers are plentiful, hiring in-house quickly ratchets down costs. That has shifted power, but I’m not so sure about prestige.

Keeping with Jordan’s football metaphor, labor arbitrage is a game focused on gaining some yards quickly. Bringing work in house immediately reduces the cost of the work. After that one-time cost reduction, the law department will not get much in further cost reductions unless it tackles process improvement. The improvement might come through technology, though often in-house technology implementation comes with little or no process improvement, so again it yields a one time change in cost. The addition of an in-house lawyer does yield a temporary increase in inventory—lawyer time to work on matters—which can help with work not being done. But eventually, the in-house lawyer will have a full schedule and the benefits of a lower cost will have been realized, so the law department will be back to where it was before. After doing a run play several times, you need to pass.

The danger in believing the labor arbitrage approach is anything but a quick fix comes when we play to win the game, not just get a few yards. Lawyers are, whether they like it or not, a cost center not a profit center. Some may offset the cost by enforcing patents or taking other actions to recover damages owed the client, but that doesn’t change the law department from a cost center into a profit center, it simply offsets costs (recovering money owed is not the same as selling products or services for profit). It also seldom rises to a long-term sustainable strategy and may become even less important if some of the current initiatives to reduce cost recoveries by non-practicing patent entities go through.

Cost centers should constantly seek to reduce the burden they place on the organization, while at the same time seeking to improve quality, timeliness, and other metrics important to the business. Eventually, the CEO or CFO will ask the obvious question, “why has the lawyer headcount grown so much?” At that point, the next logical step is to substitute thinking, capital, and cheaper labor for in-house labor. Enter process improvement, technology, and labor alternatives (these could be cheaper in-house labor alternatives or outside labor alternatives). In other words, time to cut some members from the team roster.

The View from In-House

From Association of Corporate Counsel surveys to comments from general counsel, there is a growing belief that what CEOs really want from their general counsel is strategic help, not just competent management of legal affairs. Certainly, this is more true today than it was in the past and it rings true for some general counsel. But overall, I think general counsel and in-house lawyers are unduly optimistic to think that they have been hired for their strategic acumen. Put differently, if the legal work goes away, it is unlikely many of the in-house lawyers will have jobs working as strategic advisors.

The last statement probably sounds harsh, but let’s take an objective look at the situation. Lawyers are not trained in law school to be strategic thinkers. They are trained to play the role of tactician. Jordan points this out in his post, “But most lawyers are tacticians, not strategists, and they prefer neither to manage nor to be managed.” Without trying to define what law school teaches, it certainly does not teach (putting aside the random course here and there), the type of strategic analysis a first-year MBA student gets. As a student at Northwestern University’s J.L. Kellogg Graduate School of Management, I spent significant time studying strategy, working on case studies focused on strategy, and doing group projects on strategic questions. As a student at Northwestern’s School of Law (now Pritzker School of Law), I did not spend any time studying strategy.

It gets worse. When I have tried to train lawyers at large firms on strategic thinking, they have actively resisted. The comment “we are lawyers, not consultants” comes up frequently. It is the law firm lawyers who move in house, the best brains Hilton talked about becoming general counsel, who may have some interest in strategy (though again, no particular training or experience the field). Lawyers are good at breaking complex problems into small pieces, building solutions, and re-assembling the parts, but that is not strategic thinking.

For in-house lawyers, I think that leads you in this direction. CEOs know they pay a lot of money for in-house lawyers. Some of the general counsel they hire do come with significant backgrounds in strategy, not from training, but from experience. It isn’t uncommon to see large corporations hiring lawyers who have held senior positions in government or leadership positions in other organizations (even law firms, the wastelands of strategic planning). So, some general counsel are better positioned to provide strategic counseling and CEOs want them to do what they were hired to do. But that does not mean all general counsel, and it certainly does not mean all or even most in-house lawyers, are up to being strategic counselors.

Those general counsel who provide strategic guidance face a secondary problem. One person sitting in his or her office will seldom be able to assimilate the necessary information to provide that strategic guidance. That person will need help, and if that person is the general counsel then who will help her? Law departments are not set up to provide that assistance, nor are law firms. How to thread geopolitical risk through the lens of the legal function requires more than a course on international law in law school. The world is filled with strategic consultants who work with other departments in a company, but thin when it comes to consultants focus on helping general counsel and their lawyers become strategic players.

Finally, assuming the majority of CEOs want their general counsel to become strategic advisors, the numbers tell us the impact will not be significant. There are no more than 1,000 general counsel for the Fortune 1000 corporations in the United States. There are certainly deputy general counsel and associate general counsel who are the lead lawyers for very large subsidiaries and divisions, but even throwing those in the basket won’t increase the number to more than 1,500 or maybe 2,000. Double that to include lawyer-strategists in training, and you have maybe 4,000 lawyers who are in the pipeline to provide real strategic advice to the leadership of corporations. Even if you quibble with my numbers, you will still find the majority of in-house lawyers are not in a position to serve a strategic role. They are in a position to provide inexpensive (though talented) labor compared to their law firm peers and that puts them at risk of being cut from the team roster.

The Rise of Legal Ops

Jordan then takes us where many are going when it comes to leading the grand revolution. As he says, “If you’re looking for the quarterback in the corporate legal market right now, I think you need to go visit Legal Ops.” This argument makes sense. The legal operations leaders are being brought to law departments to run them better than their predecessors. They have been asked to focus on legal operations economics, technology, staffing, and outsourcing. What direction should they take? Well, they can just look down the hall to the human resources and IT departments.

Those departments went through these transitions years ago. At first, leaders built those departments to handle work inside. They followed the philosophy that individuals in the organization were less expensive and more attuned to what the organization needed than those outside. Both areas grew large and expensive. And then the CEO and CFO asked the question: “why do we have so many of these folks, and too few of those who generate revenue?”

The next step was to cut the team roster. Human resources outsourced many of its functions to organizations that had evolved to do the work faster, more efficiently, and cheaper (and, typically, with fewer mistakes). Human resources kept the plum (and manageable) assignments for itself. IT went down the same path. Companies wrote their own programs, maintained their own hardware, and overall ran sophisticated IT departments. And then they too outsourced. At the end, they kept the plum (and manageable) assignments in house and moved everything else outside.

There is, of course, a glaring difference between law and the human resources and IT. Today, finding and retaining the right employees is a massively difficult job for companies. They need complicated skill sets from a workforce that isn’t well-prepared to handle the demands. IT must try to keep up with rapidly changing technology and integrate it or leverage it to competitive advantage. Law … well, it isn’t mission critical for most companies.

In the late 1800s and early 1900s, lawyers were key to strategic success for large organizations. Today, as Hilton says in another section quoted by Jordan, “[L]awyers have allowed themselves to be pushed further and further down the food chain, and away from the seat of power. In today’s commercial world, when there is a deal to be done, it is picked over by investment bankers, brokers and public relations consultants—all of whom have a share of the ear of the chief executive. Then when all the high-level stuff has been sorted by these experts, the package is tossed to the lawyer with instructions to sort it out and make it presentable. …”

If the legal operations leaders are successful, they will further reduce the role of law departments by moving much of the work (which will include very complex work) to lower cost, more efficient, higher quality outside providers (enter managed service providers), leaving much smaller in-house lawyer staffs to handle the plum (and manageable) assignments. But plum assignments for lawyers will not be the same as they are for human resources and IT. And still there is the lack of outside strategic thinking assistance.

Refocusing the Discussion

As Jordan says, large law firms will not die. But, in my opinion, they certainly will shrink in number and most will find it difficult to exist beyond bespoke, boutique services. Jordan gives us a picture of what the world could look like, “Maybe such law firms are vestigial and will eventually fall away—to be replaced by smaller expert boutiques where legal shoppers go for occasional splurges, while the rote work that supported their predecessors is either claimed by software and systems or is performed by clients in the ordinary course of events.”

Since most law departments are no more efficient or just slightly more efficient than large law firms, there are significant “opportunities” in both spheres. Through process improvement and technology, the path to reducing lawyer headcount by 50% is clear, though bumpy. That assumes we stick with technology available today and use straightforward process improvement techniques. Push further and allow technology to advance, and we can go much farther. In other words, until we reach limits where computers can’t do what a person can do, or it is impracticable to take waste out of a process, no law of nature stops us from shrinking the workforce devoted to corporate lawyering.

Of course turning to technology and taking out waste means that we can fill lawyers’ time with work that today is being given short-shrift or not being done. Every large corporation has legal work that needs attention beyond what current staffing and budget levels can handle and unless governments around the world suddenly go on regulatory diets, the volume of legal services needed will grow. That will offset at least some of the 50% headcount reduction, even in an efficient world.

Lawyers also could become client focused. Instead of being technophobes, they could learn about emerging technologies. Everyday, technologies such as 3D printing, artificial intelligence, nanotechnology, genome manipulation, and others are becoming more important to what businesses do and sell. The laws to regulate these technologies don’t exist or are woefully inadequate and on a global basis, the cross-jurisdiction issues are wonderfully complex. Businesses are plunging forward creating opportunities and risks that, in many cases, the law department knows nothing about. Rather than fighting over irrelevant or trivial issues, lawyers could refocus their energy on issues that really matter to their clients.

Lawyers in law departments and law firms have faced a choice for many years. They can try to ride out the end of the buggy whip era until retirement, hoping there will be enough horse drawn carriages around to keep them in business until their careers are over. Most lawyers seem content with this approach, even though only a few will survive using this strategy without serious career problems.

Alternatively, lawyers can play through the end of the game. They can change what they do and how they do it and find new ways to remain relevant to their clients. They can pivot the profession to provide the type of resource society will need to help with governance now and in the future.

Imagine what would happen if eleven players from 1894 took the field today and tried to play football? But that is what happens in law. Compare how legal services were delivered in 1894 to how they are delivered today, and you will see very little difference. More complexity, yes, but little difference in how the services are delivered. Yet the client of 1894 is not the client of 2016. To win at this game, lawyers must learn how to play it today and adapt to the rules for tomorrow. I don’t think this is an in-house lawyer versus law firm lawyer question. I think it is more basic. The real question is whether lawyers are willing to do what it takes to be in the game at all.

Educating

On October 10, 2016, the Royal Swedish Academy of Sciences awarded the Sveriges Riskbank Prize in Economic Sciences in Memory of Alfred Nobel 2016 to Oliver Hart and Bengt Holmström “for their contributions to contract theory.” The Nobel Prize has been awarded twice before to economists who focused on contract theory (Ronald Coase, 1991; Oliver Williamson, 2009). Clearly the underpinnings of what lawyers do every day go far beyond what law students cover during two semesters in the classroom.

There was a time, pre-industrialization, when practicing law really was about the law. Pleading had to be in precise form and law itself was concentrated in a few areas of social interaction, such as property, criminal law, and simple transactions. But just as industrialization vastly complicated the mechanics of society, it also complicated the law.

We know this, because we have lived through many of the consequences of that increased complexity. As the volume of statutes, regulations, interpretations, cases, and other information about a topic increased, lawyers specialized and then sub-specialized to keep up with the area. When I started working in law firms, you could still work on large transactions and large lawsuits. When I became a partner in a large law firm, you could still handle cases in many different substantive areas (my areas were securities law, antitrust, environmental law, and general commercial disputes). Today, you would not find that diversity in a large firm lawyer’s practice.

Even with the increasingly focused practices, lawyers struggle to keep up with the volume of information relevant to their field. Reading the information isn’t enough, the lawyer must also find ways to access it and to combine it to the benefit of his or her client. And every day the volume grows. But this is only part of the story.

Lawyers Know They Don’t Know

College students often recount having a dream in which it is the day before or the day of a final exam and they suddenly realize they were signed up for a course but they never attended the classes or did the homework. They awake panicked, only to realize that is was just a dream.

As a general counsel, I would lie awake in the middle of the night wondering if my team and I had missed something important. Sometimes, I was focused on a particular lawsuit or transaction. Other times, I was thinking more generally—what legal issues we not addressing that come back to bite us. From my discussions with other general counsel, my late night musings were not unusual. If it is difficult to keep track of one sub-speciality, think about how hard it is to make sure your law department, especially a small law department, is staying on top of the legal issues relevant to your client.

I think we did a fairly good job with the law. But many times issues would come up where I would think that we must not have been the first lawyers to ask a question. These weren’t legal questions that some hours of research would solve, these were questions related to and part of practicing law. For example, negotiating strategy, pricing strategies (for legal services, not corporate products), operations management, organization behavior, and, of course, technology issues come up daily in any legal practice. I was often uncomfortable with the advice I was getting from law firm lawyers when we discussed these issues. In fact, many times I felt the lawyer was winging it.

When I was applying to graduate schools, one of my undergraduate mentors made a very perceptive comment. He told me that my challenge would not be academic rigor, persistence, ability to handle complex material, or any other aspect of getting a PhD and becoming a successful academic. He saw my challenge as being interested in too many things. I loved to read, learn about all sorts of things, and then try and assemble that information into coherent theories. He told me that for real success as an academic, I would need to pick an area and then know it like no one else. Through that relentless focus, I would come to see things that others glossed over—I would get the insights I needed to make my mark.

While I still disagree that having a breadth of interests is bad, I do admit that strictly from a career perspective, I might have gone further if I had picked one topic and pummeled it to the ground. I would be “the” expert and that type of expertise can take you far.

The tradeoff that I have enjoyed, is a curiosity that lead me to unexpected information and connections. I will see something done in one area, be working on something in an unrelated area, and ask why we can’t borrow from the first area and apply the idea in the second area. This ability to cross boundaries is what, in the end, helped me to become as successful as I did.

But it also led to the nagging feeling I described above—when confronted with many questions, wasn’t it the case that others had already gone there and addressed the question? Consider this example.

One of the hotter topics in the legal industry over the past decade has been alternative fee arrangements. Today, we have many names for the topic, including value fee arrangements and appropriate fee arrangements. In the end, they all mean: should we use some form of fee arrangement for this legal matter other than the billable hour? While alternative fee arrangements have made some inroads, the extent of diffusion has been much slower than many hoped (though faster than many like).

Uncertainty and lack of trust come up often when alternative fees are proposed. The idea of fixing up front a fee for a complex service that will be impacted by many variables creates a discomfort level that causes in-house and law firm lawyers to run back to the billable hour. They both recognize the level of uncertainty in legal matters and neither trusts the other to be fair when looking at the fee after those uncertainties become known. This brings us back to Hart and Holmström.

Lawyers flounder with the fee, trust, and uncertainty issues. But what they don’t do is look to what others who have studied these issues have learned. They don’t show the curiosity to say: this may be a novel issue for us as lawyers, but perhaps it is not a novel issue and others have spent time on it and can give us some guidance. Hart and Holmström have spent much time studying the concept of incomplete contracts (contracts that do not specify all the outcomes of all future contingencies) and the effect on the behavior of parties to such contracts when it comes to setting prices. Other researchers have taken what Hart and Holmström have done and gone further.

In other words, lawyers try to muscle their way through the problem without looking for knowledge. This happens time and again. Today, many law firms have so-called pricing experts. These experts help the partners price legal matters. But in reality, many (most?) of these experts know little to nothing about the voluminous research in the area of pricing. I heard one “expert” talk recently about how he had developed a pricing theory, which sounded like a mashup of intuition, old pricing “truisms,” and a bit of consultant-speak thrown in. When I asked questions about his research on pricing for professional services, he was totally unfamiliar with the area. He just made up the theory sitting in his office based on being a lawyer for many years. He is not unique.

The same story comes up when we look at other areas of legal practice. Lawyers are not familiar with operations management, marketing, organization behavior, and much of finance. Their lack of knowledge isn’t limited to the theoretical side, it also sweeps in the empirical side. Put bluntly, lawyers are unfamiliar with vast areas of knowledge that explain much of what they do each day and why they encounter certain problems. The research also shows ways lawyers could avoid the problems. But then there are the lawyers wondering whether, if they knock the corners off their square wheels, the road will feel smoother.

The lack of knowledge isn’t limited to lawyers in law firms, it extends to lawyers in-house, and lawyers in other practice areas. For a long time, this ignorance was just quirky. Lawyers were lawyers and as long as they got the job done, others were inclined to let the quirkiness go. Not so anymore. As clients have become increasingly distressed by the profession’s backward ways, quirkiness has turned into something uglier. Quirks have become obstinate refusals to affordably help clients at reasonable prices while improving quality.

Let’s Remake Legal Education

I have heard many law faculty respond to the challenge of law schools should teach law and if students want to know business, they should go to the business schools. To them, the problems outside the walls of the law school are someone else’s problems. They have done their job by teaching legal theory. But is that really true? And is it our best position to argue students need two, three, or four post-graduate degrees to practice law?

Much of the law taught in law schools today involves law taught to pass the bar exam. As I’ve said before, we have yet to see a connection between the bar exam and “success” practicing law. It is a filter that reduces competition and should not be glorified as offering more (even competency). But that practice reduces the time available to teach other topics.

The “law” that most students encounter will be law learned or developed after law school. It is hard, in many cases, to say that the post-school law is even based on some “first principles” learned in law school. Modern approaches to contracting are not the types of contracts discussed in most first year classes, and the same is true for other areas.

It is time to ask some basic questions about legal training. Is law too complicated to be taught as we traditionally do in law school? Should education in the law be evolving into education in an inter-disciplinary area, much like other inter-disciplinary areas have developed in universities? With that evolution, should we be training lawyers in research skills, statistical techniques, and mathematical modeling equivalent to what they would learn in an applied PhD program? Should we also be training legal technicians, perhaps at the undergraduate level or as part of a combined BA/MA/PhD department or school? Those receiving a BA will, with some on-the-job learning after school, be equipped to handle many of the technical aspects in law. Those going further will be equipped to guide the law and its practice.

Legal education sits in a funky place. It is not rigorous enough in today’s world to train lawyers to guide the law or legal services. Yet, it is too costly and time consuming to be treated as an extended Bachelor of Arts. With many law schools struggling, perhaps it is time to address the fundamental issue of legal education and move in line with other countries who recognize law for what it is and don’t try to pretend the lawyers are training to be the world’s intellectuals.

ValueNetworkPrior to World War II

During the Edo and Meiji Periods up until World War II, Japan’s economy was influenced and then dominated by zaibatsu. Eventually, four zaibatsu became the most powerful: Sumotomo, Mitsui, Mitsubishi, and Yasuda. Each zaibatsu was controlled by a family. The zaibatsu controlled significant portions of steel, banking, mining, and other core industries that were critical to Japan’s industrialization.

The typical zaibatsu was made up of a holding company, a banking subsidiary, and many industrial subsidiaries concentrated in a few core industries. Those industrial entities, directly or indirectly through other subsidiaries, formed a vertically integrated system. The four zaibatsu were powerful, but there were many smaller zaibatsu focusing on less critical industries.

The Japanese military was not fond of the zaibatsu. The zaibatsu wielded enormous economic power and had great influence over the government in areas such as trade and foreign policy. Outside the military, the Japanese population  viewed zaibatsu with suspicion and awe.

While the zaibatsu increased their power as Japan’s industrialization increased during the early 1900s, they lost much of their power going in to World War II when the Japanese government took over many of the zaibatsu-controlled industrial operations. Coming out of the war, General Douglas MacArthur, leader of the allied effort to assist Japan in re-building, took further steps to dissolve the zaibatsu. He was not completely successful at eliminating them and remnants of the systems still exist today. But the devastation of Japan’s economy, the introduction of many Western ideas, and the desire to move further away from the feudal-like structure of the zaibatsu meant it was time for something new. As Japan began re-building a new structure helped the country take the next step.

The Keiretsu

A keiretsu is a loose affiliation of companies that work together. Typically, they have interlocking ownership structures. The keiretsu, unlike the zaibatsu, are not controlled by a family and are not monopolies. Each keiretsu is built around a bank that provides primary financing to the companies in the keiretsu.

The Toyota Group is affiliated with Mitsubishi UFJ Financial Group (MUFG), which is part of the Mitsubishi Group. Toyota Group’s keiretsu consists of many tiered suppliers who produce parts or sub-assemblies for Toyota vehicles. There are horizontal keiretsu and vertical keiretsu, and Toyota Group is considered one of the largest vertically integrated manufacturing group keiretsu (a seisan keiretsu).

Japan’s laws do not allow banks to own more than a certain minority percentage in industrial companies. As a result, the keiretsu are not as tightly integrated as the zaibatsu. Even ownership among keiretsu industrial entities usually is limited to minority positions, allowing member companies to participate in coordinating and directing other companies without directly controlling them.

The keiretsu system has not been replicated outside of Japan, with  possible exceptions in South Korea and India. Within the United States, for many legal and cultural reasons, the keiretsu idea has not taken hold.

Modern Law Firm Systems

Although the United States does not have keiretsu, we have seen a very distant and pale cousin appear in the legal industry. It is the law firm referral network. These networks have been formed to help clients who need services in many jurisdictions, but who prefer to connect into a pre-existing network over creating their own network. There are two basic types of lawyer referral networks.

First, there are the dues-paying membership law firm networks. These networks pre-screen firms, provide an administrative hub, and restrict member firms to providing services in certain jurisdictions (exclusivity). They exist somewhere between trade associations and vereins.

Second, there is Dentons’ Nextlaw Global Referral Network. The Network is structured similar to other referral networks. But, Denton argues, it differs from the traditional law firm referral network in two major ways. First, traditional law firm referral networks usually require that member law firms pay to join the network. The fees cover the administrative costs of the network, which include advertising, vetting current and potential members of the network, educational events, and handling administrative duties associated with the network (such as maintaining and populating a web site). Second, Dentons does not give member firms territorial exclusivity in its Network, something other referral networks usually do.

However, both network types lack an essential characteristic of a lean network and, therefore, do not move us toward an improved legal services system. The Toyota keiretsu integrated the the operations of each supplier with those before and after it. It was this integration, done through understanding and interconnecting processes, that caused the network to rise well above any competing supplier system.

Why Keiretsu Are Superior

When a client works with multiple law firms, or even one law firm using multiple offices, or even one office of one law firm, it will get—well, it isn’t sure what it will get. Each lawyer will do his or her thing his or her own way. The legal industry is famous for its love of autonomy and lack of standardization.

Sticking with the traditional law firm referral network model, the lawyers in each firm deliver services using their own processes, standards, timetable, and customs. For each firm, this is a custom mix that someone must integrate with what all the other firms are doing. For the client, this means a lot of wasted time (integration), risk (variation among firms), and extra labor (re-work and fitting the work of firm A into the slot left by firm B). Simply putting the firms in a network or on the same software backbone doesn’t solve the problem (though it adds cost to the system).

Toyota Group faced the same problem. No matter how lean it would get, it relied on many suppliers who in turn relied on many suppliers. If that chain wasn’t well-integrated, Toyota Group would be limited in what it could achieve. The solution was to work with those tiers of suppliers to create the integration necessary for continuous improvement.

If a Toyota assembly plant gets its engines from a first tier engine assembler, then the engine assembler must deliver to the plant exactly what that plant needs, when it needs it, and configured exactly the way the plant wants. Toyota Group did not need the wrong engine built efficiently, the right engine delivered late, or the right engine delivered on time, but poorly constructed. That meant Toyota Group needed to work with its engine supplier to develop the value chain through both of their systems. This is key: Toyota Group and the supplier worked to create one integrated, seamless, value chain built on continuously improving processes.

The same problem existed for the engine supplier, which received parts from many second tier suppliers, and so on back through the chain. The value chain was not just what the Toyota assembly plant did, it was what every supplier that participated in the chain did, from the business that made the bolts through the assembly plant itself. Otherwise, waste would get passed along and build up in the system, much as many streams filled with debris will eventually dump all that debris into the major river. Cleaning the river does no good if the streams continue to send debris.

Law firm networks do not integrate the way Toyota Group integrated. Part of the problem lies in legal services delivery. Someone must work with the organization at the head of the system, and then convince that entity and the supplier entities to work together—for the good of their clients—to improve and integrate the system. Then, of course, all of those entities must fulfill the promise. If the head of the system is not standardized, efficient, run on metrics, etc., then the rest of the value chain will have similar flaws.

You can already hear an objection. Each firm argues that it works with many clients and firms and that it can’t adapt its systems for each one. The firms and lawyers will ask why they should “optimize” for one system, or how they could possibly optimize for many systems. This objection comes from not understanding process improvement.

Within Toyota Group, the same objection could have been (and probably was) made—at least below the assembly plant. The supplier companies do not work solely with Toyota Group. They work with suppliers outside the network and they have customers other then Toyota Group. Toyota Group encourages that diversification. Each supplier benefits from learning and improving its processes, because it gains (or maintains) a competitive edge. It improves its financial prospects and becomes more valuable to the companies with whom it does business. It is hard to find a supplier who can plausibly make the claim that using too much labor, delivering mediocre quality, having high variability in its products, and engaging in other wasteful practices works to its benefit.

The Client Network

Although a Toyota assembly plant is a manufacturer and the client is the ultimate  customer, in this story the assembly plant is the customer. In the legal industry, the customer, for large corporations, is the corporation not the lead law firm. Clients should be building networks that contribute to their value chain, not the law firms’ value chains. To do so requires a very different way of thinking than what we see in clients today.

The client needs to start with a value focus and define what it means when it says “value.” It should then assemble suppliers in its value chain who are willing to align their goals with the client, and suppliers means more than law firms. Those suppliers must work together to define the points along the value chain. Then they must go the next step and define processes. The suppliers and client must work as a team to improve and then improve again. In other words, continuous improvement must be built into the client’s supply chain, through law firms, managed service providers, e-discovery vendors, and so on.

For large corporations, this approach sounds feasible, if not easy. But what does the small corporate client do? It can’t reinvent the legal supply chain, but it can reinvent its own supply chain and choose suppliers based on those who will work with it on process definition and improvement. Supplier selection based on what the supplier can and will do becomes more important that name recognition. The size of a supplier recedes in importance and the supplier’s ability to flex, to re-work processes, to understand value chains, to remove waste, and to align itself with its clients goals become selection criteria. Again, we do not see this level of continuos improvement throughout legal services value chains.

The need for end-to-end value chain process improvement in the legal industry leaves an interesting opening for businesses, such as managed service providers (MSP). Clients, rather than depending on law firms to do the integration, could turn to the MSPs to play that role. By providing legal project management, process improvement, technology expertise, and metric knowledge, the MSPs can knit together the law firms, MSP, and other providers (e.g, e-discovery companies) into well-integrated, cost effective, legal services networks. Medium and even small clients could tap into these networks.

The MSPs would have better goal alignment with clients and more incentives than law firms to work with clients for the long-term (long-term benefits accrue more to businesses with long-term perspectives than to law firms which operate on one-year perspectives). They also can build and maintain networks where one client may need Brazilian counsel one time, but across many clients that assistance is needed frequently so there is an incentive to continue improving processes. The MSP also can help with tasks, such as project hanging deals where tight network integration would reduce the friction costs in-house counsel encounter when creating ad hoc deal networks. Of course, a law firm could decide to play the MSP-integrator role, but we have not seen firms willing to take on the challenge (again, we see only loose networks with little or no process improvement integration).

Conclusion

The lawyer referral networks that exist today have been built for the benefit of the network members, not the network users. Law firms participate because they believe the network will increase their exposure to clients and, ultimately, client revenue. This network structure is similar to the zaibatsu, which were built for the benefit of the controlling families. As a client, however, that is not the network you want.

As a client, you want a network structure that delivers value to you, and that means a structure that is aligned around your goals. Unless your goals include spending money on inefficient structures, modern referral networks are not likely to align with goals such as increasing efficiency, cost, and timeliness.

The network that will add the most value to your business should be built with you—the client—at the focal point. You are the starting point for the value stream that will deliver services that are fit for your purposes. The members of your network must be flexible, able to adapt what they do to operate smoothly within the value stream passing services through the network with minimal waste, and well-positioned to add value along the way. In other words, networks should not be law firms strung like pearls on a string. They should consist of diverse service providers who are strategically positioned to deliver what is needed, when it is needed, in the way it is needed.

So far, we have not seen a law firm network emerge with this process-focused, goal-aligned, value driven structure. Even attempts by clients to build networks have focused far too much as cost and spent almost no effort on a true grassroots approach to building the system. Technology will exacerbate the problems of the current lawyer referral networks, though they will undoubtedly herald their use of technology to integrate the members of their networks. As with most changes affecting the legal industry, the real question of change goes back to the client. Will clients today take the lead in building true, value enhancing networks or will they continue to settle for the modern equivalent of country club friends?