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?

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

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

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

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

Lean and Change Resistance

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

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

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

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

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

Overcoming Resistance

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

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

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

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

It Is Easy To Succeed—At First

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

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

Change

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

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

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

Kata Is Necessary, But Not Sufficient

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

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

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

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

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

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

Can Lawyers Find Purpose?

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

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

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

Round 1 – Heavyweights in the Ring

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

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

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

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

Round 2 – A Draw

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

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

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

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

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

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

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

Round 3 – Another Draw

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

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

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

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

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

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

Now Let’s Stop the Fight

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

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

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

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

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

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

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

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

What Limits Should We Place on A.I.?

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

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

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

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

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

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

Technologists Take Control

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

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

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

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

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

Lawyers Show Their Fear of Technology

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

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

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

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

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

Law is Not Simple Code

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

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

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

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

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

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

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

Governance Needs a Broad Perspective

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

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

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

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

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

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

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

Delegate

 

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

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

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

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

Talented Professionals Should Get More Work

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

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

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

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

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

Delegate, and then Delegate Some More

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

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

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

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

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

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

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

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

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

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

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

The Perverse Incentives of Legal Service Organizations

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

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

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

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

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

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

From Solving Problems to Apocalyptic Collapse

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

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

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

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

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

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

Shoot for the Moon

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

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

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

Lawyers are Indispensable

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

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

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

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

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

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

The Ask

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

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

To share a moonshot idea:

* Post a comment to this essay.

* Send me your idea on Twitter: @LeanLawStrategy

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

OverhireWhat might be cause for cheers today is really another warning shot across the bow. The growth in law department hiring will be followed by a dark period as law departments shrink. General counsel can avoid some troubled times ahead if they don’t overhire and modernize their practices now.

Most lawyers believe they are mostly immune to developments in the automation of legal tasks and artificial intelligence. They think what they do requires human abilities computers can’t match. On the analytical side, these abilities include legal argumentation and abstract thinking. On the personal side, they include empathy and collaboration. Despite what some futurists tell us, lawyers hold steadfast to the belief that no black box will replace them.

Lawyers aren’t alone as they defend this ground. A recent McKinsey report says that certain types of jobs, including those done by lawyers, are among the least likely to be replaced by computers anytime soon. Apparently many general counsel believe “anytime soon” is far enough in the future that they should build headcount today rather than improve the efficiency and expand the use of computers in their departments.

Don’t Confuse AI Hype With the Value Computers Can Add

We should ask two questions when considering whether a computer can do a lawyer’s job. First, have we reached the point where we can program a computer to do the tasks lawyers do? Despite the abundant hype and stream of articles saying AI is about to do it all, the answer clearly is and will remain for a long time (decades) no. More on this in a bit.

Second, even if a computer can do a task, do we want it to do the task? The answer here is a bit more complicated. If the task is routine, boring, and not very complicated, some lawyers are willing to cede the ground. Not many lawyers cried when computers took over large volume document review. But humans do not seem excited about computers replacing lawyers for tasks like serving as a judge, even when the computer will be more consistent. In some roles, people want people.

So the world is split, with most lawyers falling on the side of tradition: it takes a person to practice law. Reinforcing that view, general counsel seem to be placing large bets on people over computers. The Association of Corporate Counsel’s Chief Legal Officer’s 2016 Survey shows strength in law department hiring:

Few CLOs made any cuts to their in-house lawyer staff last year. In fact, 37 percent added in-house staff and 14 percent made significant increases (greater than 10 percent) among in-house lawyer positions last year. CLOs in Europe, the Middle East, and Africa (EMEA), and the Latin American/Caribbean region outpaced other regions in adding in-house lawyers last year. Following compliance, law departments were focused on creating positions in the practice areas of contracts, general legal advice, and regulatory/ government affairs.

After years of slow growth in law departments, general counsel got the go-ahead a few years ago to bring in bodies and since then the trend has been up, up, and away. Good news for lawyers and law schools!

Things aren’t all rosy for in-house lawyers, however. It seems general counsel can hire but the hiring quid comes with a budget decrease quo. The money to pay for those hires must come from somewhere and that somewhere is the pockets of Big Law. When in-house hiring picked up outside spending dropped. According to the ACC’s Survey, general counsel are hiring to bring work in-house and decrease outside spending.

Budget cuts can be a predictor for staffing trends. Forty-one percent of CLOs who expect their outside budget to decrease by more than 10 percent also anticipate the work outsourced to decrease. Eighteen percent who anticipate a reduction in outside sourcing to law firms or legal service providers intend to increase the number of in-house lawyers in their department.

The good news for lawyers really turns out to be good news for those lawyers who can get in-house jobs. The profession is transferring work from outside to inside.

Computers Will Displace Many Lawyer Tasks

Let’s go back to what computers can do and compare that to what general counsel their new lawyers to do. According to the survey, general counsel want these lawyers to handle compliance and “contracts, general legal advice, and regulatory/ government affairs.”

Contracts is an obvious choice. Corporations swim in contracts and the pool gets deeper each year. We don’t know what impact the current nationalist trend in many countries will have on global business. But aside from that trend, as countries have increased their regulatory and compliance activities, companies have had to do more contracting.

Recognizing the contract trend, lawtech has made contract automation software one of the hottest development areas. . It seems like every other startup has a tool to help with contract drafting and management. Those tools have focused on automation, but there are some tendrils out there touching the edges of AI. Combine what computers already offer with some process efficiency, and you can significantly reduce the time it takes a lawyer to do a contract.

Before we see much in real AI, blockchains and smart contracts will come into play. Fintech is growing and banks know the disruptors have them squarely in their sites. Blockchain may not be everything, but it also may be a way to dis-intermediate or de-centralize some lucrative portions of banking, and smart contracts will play a role. With finch pushing blockchains, lawtech is catching up. Expect to see contracts migrating to code.

Outside the banking industry, we have the Internet of Things. More than a trillion devices will inter-connect by 2020. You will ask your watch to tell your phone to start your car, which will drive you to work and start the coffee maker just as you get there. Welcome to George Jetson’s life.

As all these things talk to each other, they will need some rules—some way of negotiating who pays for what and what to do if things don’t go as planned. More smart contracts.

As the number of smart contracts grows, it doesn’t take much imagination to see the technology  of smart contracting migrating into commercial contracting. Lawyers like to massage documents. But, it is hard to argue convincingly that we need thousands of boilerplate language versions and thousands of tweaked basic agreements.

How many ways and times do we need to say “if there is a fight, we will duke it out in New York” or “your payment is due on the last business day of each month”? Overall, general counsel could offset much of the growth in contract work by embracing existing ways to improve efficiency and augmenting what lawyers do with some computers.

What about the other areas where general counsel are placing these new hires? General legal advice. This is a mushy area that often means: we get so many questions each day we need lawyers on the phones and in meetings to answer those questions. Talk to many in-house lawyers and you find that those requests for advice can be sorted into two broad categories: the questions they get over and over again and the truly unique questions. The first category sounds suspiciously like what expert systems can handle. The second sounds like the field where lawyers think computers will have a tough time playing.

Finally, general counsel need more lawyers on regulatory/government affairs. This category keeps general counsel up at night. More countries, passing more laws, and more corporations doing more business in those countries. Weaving business through those laws isn’t easy and the complexity constantly grows. Having more lawyers helps. Having more lawyers operating inefficiently just increases the coming labor crash.

Lawyers Repeat Sins of the Past

Overall, this leads us to a bit of a mess. It reminds me of what happened decades ago in the IT and human resources departments (both service areas within companies). The growing complexity of their fields and the greater demands placed on the departments led to increased hiring in those departments. IT and HR departments grew to handle new responsibilities. And then judgment day came.

CEOs started asking fundamental questions. Were their corporations in the business of running IT and HR departments, or were those ancillary to the core activities of the corporation? If ancillary, and if there were others who handled IT and HR as their core businesses, wasn’t it better to shed what wasn’t core and let others do it? And what about cost? Could a corporation decrease cost by having outside experts, who did the same thing for 50, 100, or 1,000 corporations, handle the tasks instead of trying to do everything within each corporation?

Today, at large corporations, IT and HR focus on the value-add activities they can do in-house and let outside providers do everything else. Why build non-core operations in each corporation when outside providers already have created what is needed? By outsourcing, a department head can reduce headcount, get the expertise of someone who does the task each day 100 times, and focus the people in her organization on what makes it unique.

Build Abilities Instead of Headcount

Let’s do a mashup. Computer automations is creeping into law practices. The startup disruptors will continue their push, computers will become more powerful, and what today is mostly automation and a little AI will become a movement to do more and more within law. A computer won’t take over 100% of a lawyer’s job, but if it takes over 50%, then you need only one lawyer, not two. Do the math, and the law department should shrink by 50%.

We have seen the beginnings of outsourcing in the legal industry. Managed service providers grew out of legal process outsource providers. They  have strong incentives to use technology more effectively. If they can show better quality, lower cost, and faster response times, these providers have an edge over humans. We are early in the disruption cycle, but the signs are clear that these and other businesses entering the legal industry can take more work away (a lot more work away) from lawyers.

The mashup comes when these businesses bump up against law departments, and the CEO does some management by wandering the halls. Even the CEO who is the most ardent law department supporter will eventually ask: “why do we have so many lawyers and not enough X”? That X can be engineers, designers, or any other job classification directly tied to the revenue stream. Directors and shareholders don’t ask CEOs to build large internal service organizations, they ask them to cut costs, grow revenues, and increase profits.

When the CEO makes that walk, the general counsel who grew headcount will have some difficult questions to answer. We already have the methodologies and technology to offload a tremendous amount of what lawyers do onto computers. This isn’t wishful thinking, this is simple blocking and tackling. We have software that has been around for decades that we know works. We have businesses and consultants who know how to use the software and have lots of experience with it in the legal industry.

We also have lots of experience studying processes, simplifying them, and rebuilding them to be less costly, higher in quality, and faster than labor-intensive systems. We have corporations and consultants experienced with these methodologies.

Put it all together, and you have proven ways to reduce the burden on law departments without building a headcount overhang that will come back to haunt everyone. We don’t need to repeat what IT and HR did to learn the same lessons they learned. History teaches us how to do better, but we must listen to the lesson.

Hiring serves an immediate need, but it isn’t strategic planning or running a department for the long term. Lawyers learn managing by headcount in law firms, but it also reflects much of modern corporate thinking. Hire today because headcount can be reduced tomorrow. The long-term bond between employee and corporation does not exist any more.

The strategic alternative to piling labor on labor is building a law department that can flex with the business and the times. To do so, general counsel should get to the roots of how their departments operate, start with a proven technology backbone, and then add lawyer services. In other words, general counsel should build a sustainable practice not just a large labor pool.

They should build the 21st century law department from the ground up, not from the law department out. We have moved past the law department being an in-house version of a law firm, and have moved past the general counsel managing like a former law firm partner.

The new generation of law department and general counsel are professionals running complex internal service organizations. The trend towards hiring “chief of staff” to help manage those organizations is another step in the right direction. Law departments deserve individuals with the analytic and management skills prevalent in other departments. All of these skills go to waste, however, if law departments don’t move past replicating past mistakes.

Ten to fifteen years from now, if the current law department hiring binge doesn’t stop, we will see law departments go through some traumatic changes. Building efficiency and integrating computers will help law departments avoid the trauma. There are many reasons for law departments to embrace a new business model today. Avoiding the long term consequences of this hiring binge is another one.