The Boring Law Firm
The model is dead, may it rest in peace
W e have been circling this issue for years, but we won’t let go and head to where the facts take us: the large law firm model passed its “use by” date long ago. There are large law firms that do well, a few very well. But, we confuse the individual firm with the genre. The exception of this firm or that firm does not prove a rule that the large law firm model remains viable. Corporations supporting the model do not help anyone, especially themselves.
Let’s pull the plug on large law firm model and bring in the new.
You may think that I’ve just dissed the biggest players in the industry. Go back and read what I said: the large law firm model is dead. We are in the “transitional” stage (code for can’t go back, not sure how to go forward). I didn’t diss anyone, but I did fire the warning flare.
Since large law firms work on the partner-ish model and the corporate model with investors other than lawyers seems to be the alternative, the natural place to go is re-regulation. Rebels argue we need the American Bar Association to kill the requirement that only lawyers may own law firms. Slay the beast and law firms will rush out the door to get private equity money and the world of law firms will forever change. Except that won’t happen. Would you invest your money in something that has no assets and labor that can’t be bound to the firm? How many of the large UK law firms have been acquired by investors? How many have built structures where they can use their new-found access to capital to invest in technology?
If we change the rules, the game will be played differently. But waiting for the rule change is like waiting to write your paper until the day before it is due. My students may think that is efficient time management, but it simply gets you in trouble. Rather than wait for the rules to change, lawyers should be proactive and change the game.
If a senior partner is reading this essay by looking over your shoulder, take a quick look at his face. Notice the twitch he has developed and the pasty white color of his face? Those aren’t due to many nights reading documents under a fluorescent glow — that is your job. He is pale and twitchy because suggesting we do something to the large law firm model goes right to the core of his universe. Large law firm partners like owning their businesses and running them how they please. Right now, it pleases them to make money with “few” risks. Altering the model suggests risk. We are in a battle over time — can they run out the clock (retire) before they lose the game.
If Not Re-Regulation, Then What
It is Friday night, you have a rare night off, and after a few drinks with your friends you start fantasizing about what your large law firm could be (and for those of you not in large law firms, stay tuned — I’ll get to you). You start from a simple premise: value in law firms is shifting from labor to capital. This isn’t a revelation for all times; it is a simple acknowledgment that law has joined the economic world in which others operate. It happened decades ago for others (remember hearing about the Industrial Revolution?), but that is another dream.
If value is shifting to the capital side (in the form of technology), then how could a law firm capitalize on that trend without screwing up its labor base? It isn’t that labor has lost its value. Instead, the balance between labor and capital is shifting. In the past, it was labor 100% capital 0% and now it is labor 90% capital 10% (feel free to adjust those percentages to whatever lets you sleep at night).
As a strategic advisor to law firm management, what might you suggest a firm do? We manage risk by hedging bets. Law firms gamble on people and, as with most gamblers, law firms lose quite often. Lateral partners don’t bring the books of business firms blindly believe they will bring. Associates leave before firms can reject them as partner candidates, but while they still need their hands. Mergers do not result in growth so much as perhaps stall the decline. Could you suggest a way to retain labor, use capital, and not screw up the firm during the transition to what will be a mix of labor and capital?
Elon Musk has created several companies you know about, and one you have never heard of: The Boring Company. As with most of Musk’s ideas, The Boring Company’s premise is simple and the execution challenging. It looks at transportation (personal mobility, using modern-speak) and asks a question: if roads are congested, why not go down, not up? The Boring Company plans to create tunnels that will augment our existing roadways.
For ages, we have imagined the solution to our travel problems as going to the skies. This approach has an intuitive appeal. We can fly anywhere, land anywhere, and live as free as birds. Now, go watch one of those dystopian future movies. They show cities where everyone is driving in sky lanes. The skies look like highways without roads. And, they are just as congested.
On a practical level, going to the skies presents problems. Weather, for one. Gravity is a second: what goes up has a tendency to come down, unexpectedly. Noise might be a third. Ever hear a helicopter fly overhead? Now, imagine hundreds or thousands of noisy beasts. From an environmental viewpoint, don’t forget the birds. If you think wind turbines mess up the skies for our feathered friends, imagine what we can do with sky highways.
The Boring Company’s alternative is classic Musk. Ignore how we have done things and imagine a new way — no “we’ve never done it that way” constraints. Musk wants to dig tunnels and move cars through the tunnels on electric sleds. The Company’s mission is to re-design and then make a reality a new concept for tunnels.
There are some challenges. First comes cost. A typical tunnel costs up to $1 billion per mile. The tunnel must be 28 feet wide to handle gas cars, and must meet other size and location requirements.
Musk’s approach? Cars ride on electric sleds through the tunnel. Do that, and you can cut the diameter of the tunnel from 28 feet to 14 feet, cut the cost by a factor of 10, and eliminate the gas exhaust problems. Each car sits on an electric sled which carries it through the tunnel to its exit. Since the car sits on an electric (autonomous) sled, the speed can increase to almost 125 mph.
Time For A Boring Law Firm
We need a Boring Law Firm. Don’t get me wrong, we already have plenty of boring law firms. We need a Boring Law Firm that will do for legal services delivery what Musk is trying to do for the tunnel. It will look at what it does and what its clients want and — while preserving its core business — reinvent how it delivers legal services to clients. We need a law firm that is creative, thinks like a high-end consulting firm, and recognizes that much of what it will do to execute on its strategies requires the skills of a sophisticated supply chain manager. An IDEO, McKinsey, Apple mashup.
Where is the gotcha? Well, Musk is an entrepreneur. If his idea pays off, The Boring Company will make money and lots of it. The Company will be worth billions and we will have a new way to move around those nasty traffic jams. With law firms, no such luck. The old “no one but a lawyer can own a law firm” catch. But is it a catch?
Clearspire showed one way to handle this problem — tie a law firm to a tech firm. Lawyers own the law firm, lawyers can own part of the tech firm, and those who aren’t lawyers can own part of the tech firm. We can separate the technological innovations from core legal services. Clearspire’s problem wasn’t the structure. If Axiom can exist we can make this work.
But there is another catch, one that isn’t as easy to fix. This catch is the clients. Musk’s ideas, such as Tesla and SpaceX, work because customers want them to succeed. They want to pay less to get a high-performance, good looking electric car. Companies want to pay less to get their payloads (and people) into space. They address the basics for an entrepreneur: problem-customer segment-superior solution.
Corporate legal services clients don’t want to pay less (a few do, but in a $250 billion industry in the US alone, that amounts to a few drops in the bucket). The conundrum is simple: each dollar reduction in legal spend has a negative affect on in-house counsel’s perceived power and influence. As you reduce the cost and mainstream the services, you become just another function within the company.
A really good general counsel could (almost) work herself out of a job.
Call this the individual versus institution problem (per Ron Friedmann), massive passive resistance (per Jeff Carr), or simply too much work (per the in-house counsel). In all three cases, what is best for the company is not necessarily best for the person. There is no market for the breakthrough Boring Law Firm.
Who Is The Customer
Many of the problems facing those of us who want change in the corporate segment of the legal industry have at their core this common problem — no customer. But that isn’t really correct. The true customer is not the in-house lawyer, it is the business customer. Ask any business person if they want to reduce their legal costs while increasing quality and keeping risk the same (or reducing it) and the answer is an unequivocal “yes.” As much as they may like the in-house team, business people have no need for extraneous cost.
To reinvent legal services, then, we need to look through the in-house law department to the true customer and ask “what problems do they have?” We need to start with their problems as we design solutions. We need to help them solve their customer’s problems (that is, pierce through to the problems facing the company’s customers). We must find the root problem. When we do that, we will think more like Elon Musk and we won’t have boring law firms.