UnitedLex’ Dan Reed: A Contrarian Who Is Mainstream
Reed is not a contrarian, but UnitedLex is doing cool things
With so many things happening in the legal industry, it can be tough to find the differentiation sweet spot. Dan Reed, CEO of UnitedLex, has taken the position that he is the contrarian in the industry. Casting himself (in the James Dean role) against industry mainstreamers Richard Susskind, David Wilkins, and Bill Henderson, Reed’s pitch is that he works in the practitioner realm while the other three work as academics. Reed says he knows what can be done. The other three must hypothecate, and they get it wrong.
The key difference that UnitedLex can bring to the table, according to reed, is capital. Law firms are constrained in what they can do because they lack access to capital. Given their legacy partnership structures on top of the capital constraint, the law firms aren’t positioned to do what an upstart like UnitedLex can do.
What about “legal service” companies? Well, they too are handicapped, according to Reed. Legal service companies are in it to make money; “one trick ponies” who focus on one thing and not on improving the delivery of legal service or the legal ecosystem as a whole.
Reed, we see, is different. He knows what practicing is all about and he isn’t in it for the quick money he is in it with capital and strategic long-term vision:
Unless you change the paradigm — unfortunately, capital and long-term vision are the only things that can truly address the topic of the panel — and bring a solution that has long-term stability economically, intellectually, inspirationally and have the capital to truly see that through, then you’re basically just pontificating or just blowing a lot of smoke. What people need to be focusing on is really understanding that what we’re talking about is truly real, and it will happen in our professional lifetime. We shouldn’t be talking about things that go beyond that.
I have never met Reed, I am not for or against him, I think UnitedLex is doing some interesting things, and I know I can leave Susskind, Wilkins, and Henderson to defend themselves. But, having knocked around the industry for almost 40 years and done things as a practitioner (in addition to other roles), I thought it might help to put Reed’s “contrarian” positioning in perspective. As a contrarian, he is as mainstream as they get.
Nothing Is New
UnitedLex and Reed are getting a lot of attention right now as a result of “legal’s largest-ever managed service transaction: an agreement to support the global legal team of DXC Technology, a conglomerate of Computer Sciences Corp. and Hewlett-Packard, with 250 senior-level professionals.”
Let’s start with a bit of history. Until the latter half of the 20th century, the model for corporate legal services was to outsource them to a law firm. The terms used to describe the relationship were different (no “outsourcing”), but the effect was the same. Legal work was handed outside to one or more law firms close to the client. The general counsel’s role (assuming the company had a general counsel and one of the firm’s partners did not have that title) was to handle the administrative aspects of the arrangement. Until the late 1960s and on, these arrangements frequently were handled on various fixed fee arrangements. The billable hour had not arrived.
While UnitedLex’s financial arrangement undoubtedly has performance metrics, incentives, and other clever ways for both parties to benefit from the structure, and the old law firm model had none of those, the basic structure is there. The particulars of the arrangements varied over time, but the idea is nothing new. The “new” idea came along in the latter half of the 20th century when in-housing legal work became popular.
To anticipate Reed’s challenge that I am an academic (I am Adjunct Professor at Michigan State University College of Law and a Member of the LegalRnD Faculty) and don’t know, but can “pontificate” (Reed’s label), I saw this structure first-hand when I moved from partner at a major law firm to the newly formed law department for a Fortune 500 corporation back in the 1990s. We replaced the model with a modern law department. I dealt with it twice more in my roles as general counsel at Fortune 1000 corporations, both times replacing the model with modern law department. I hope that establishes my bona fides, so on with the history lesson.
Continental Bank shifted all of its work to Mayer, Brown & Platt (as it was then called) rocking the legal world in the early 1990s. Peoples Energy Corp. did the same thing in 2003, shifting its legal work to McGuireWoods. There have been others. And, of course, companies have done smaller scale versions shifting work in just one area to a law firm or managed services provider. The reasons vary and the successes were few and far between. But, the notion of consolidating legal work with an outside service provider has been around for quite some time.
Of course, UnitedLex is not the first to structure a managed services provider relationship with a company. Competitors such as Elevate Services also have such relationships. They date back to some of the original moves from outside staffing companies to “legal services outsourcing” the popular name before “managed services provider” which now seems to be giving way to “law company.”
The players and names shift, but one general theme has been consistent: as corporations find themselves with routine, systematized, or (seldom) commoditized legal work, third party service providers may be a better choice to do the work. Highly paid, highly educated graduates from fine law schools who spent time at top law firms and now work in-house can devote their energy to complex issues and the other work can go to organizations tuned to handle it. Bill Deckelman, DXC general counsel, explained it well:
“a shift in the industry to high volumes of smaller contracts, paired with the company’s April merger, prompted the deal with UnitedLex. He said he felt the legal outsourcing provider could offer the kind of contract management technology that DXC’s in-house team needed to keep up with the increasing need for speed around contracting, but for a much-reduced cost overall.”
Nothing here smacks of rebellion in the Empire. It tells the story of an industry slowly moving away from the law firm model to the law company plus law firm model. UnitedLex was well-positioned to take the next step — a larger deal. No doubt UnitedLex will be knocked off that pedestal at some point.
What Comes Next
For practitioners, sending legal services outside is one option to reduce costs without significant risk. The first, of course, was to in-house cheaper labor. During the past five years, many companies did exactly that and hired the experienced, trained, and educated lawyers the firms were letting go. But that ploy resulted in a one-time cost saving. To get more, you must find cheaper labor, automate, or both. The managed services providers (law companies) offer all three options.
At some point, the resource cost to reduce legal services costs will be equal to or greater than the gains achieved by using those resources. What comes next? This is where I think Reed has the greatest concern, not just with academics but with anyone suggesting that AI is about to take over the practice of law. There is so much we can do to improve legal services without ever entering the AI realm, that bringing AI into the discussion just muddies the waters (and probably creates some sales pipeline disruption). With the exception of eDiscovery, this is the realm of the one trick pony legal services companies who are just in it to make money. (Note: I always find this a curious epithet to hurl since I’m guessing UnitedLex’ investors are also in this to make money, but it suggests that Reed and UnitedLex have a higher alling as well.)
Putting AI in law in perspective, if AI in mainstream is at 10 on a scale of 1 to 100, AI in law is somewhere far to the right of the decimal point. I do not know how long it will take AI and law to make it past 1, but we have a long way to go before anyone can justify worrying about AI having a major impact on lawyer’s jobs (automation will do that much sooner). Contrast this to AI and its impact on society, on our laws, and we have loads of legal work to do.
In the end, I see Reed and UnitedLex as right down the center of the fairway, . They took the next logical step in corporation-outside provider relationships. Perhaps the size of the DCX deal will give comfort to others to take the same step.
What this model did not do and at some point a model must do, is completely re-write the paradigm for providing legal services. The new model will need to use more than automation, but it will also be like the move from conventional computing to quantum computing — a game changer. It is unlikely this model will come out of the law firms. Perhaps a law company or managed service provider will develop it. It may come from those legal services companies intent on making money. Perhaps even an academic with practitioner experience will develop it!