The Silliest American Lawyer?
My post on "Law Firms Are Fat, Not Flat" has drawn the ire of one commentator Moe Levine, who has also taken issue with numerous other posts on this site here and here. Recall my "Fat Law Firm" post essentially noted that law firms have largely remained insulated from change and innovation, and are way behind other industries in terms of delivering added value to clients. In response to my post, Moe states:
You write, "Law firms are insulated from the pressures of innovation because of liscensing restrictions."
What do you do, just sit around and make up silly stuff?
American law is probably the most competitive business in the world. There are zero barriers to entry, save for education and a 2 or 3 day test, once. There are no capital requirements, etc. etc.
Competition does not spur investment. The opportunity to earn a return on an investment yields investment. There are no opportunities in the law to make more money.
There are no deals not being done because of legal cost, no real property not being sold, no crimes not being committed, or probate estates not being closed.
Legal services are sold as they are because the market is working.
Moe obviously thinks that the legal services market is, in fact, both innovative and market driven. I disagree with most of the points made by Moe, above. I have worked for several of the largest law firms in the United States, as well as some smaller ones. I see what is happening on the ground every day. I Observe an insular and uninspired profession which is so self-regulated and self-absorbed, that relative little is being done to incorporate new technologies and business models to deliver more value for less cost to the client (although I certainly see plenty of firms using technology to find new ways to create billing events for clients). When you look at what is going on in other markets with outsourcing, insourcing and order fullfilment, law firms with few exceptions are still sitting on the beach waiting for the swells to come up. Without doubt, Wal-Mart is the king of delivering more for less regardless of what you think of the politics of Wal-Mart's approach. Is there any firm which is even remotely analgous to Wal-Mart in terms of reducing cost and increasing value?
I wanted to take the opportunity to respond to one of Moe's comments which I find interesting. Moe says "e; there are no deals not being done because of legal cost." Actually, I see something worse every day. Yes, the criminal commits the crime, but the real question is can they afford an attorney. And even the wealthy accused have the right to get more for their legal buck. On the civil side, I see attorneys still charging thousands of dollars for contract review and drafting because they are using a process which drives hours up, ignores all of the great efficiencies offered by technology and software and are using billing techniques which offer no incentives for the lawyer to deliver maximum value for the least cost. I see that the average small and medium-sized business avoid lawyers like the plaque when they do deals because they don't see value being delivered by those lawyers. I deal with litigators every day who have no idea what they are trying to achieve for the client in court and are driven only by a sense that they need to fight without any sense of what they are really fighting for. These trial attorneys go into a comma 30 minutes after the hourly retainer is signed and become barriers to resolution until after their client runs out of attorney fee money.
The very concept that an hourly billing model where the attorney has absolutely no 'skin in the game' could actually drive a market to efficiency (as opposed to maximizing revenue) is puzzling to me. But many lawyers are so blinded by the way things are that they don't see how bad things have gotten. And any attack on the hourly billing model is akin to treason against the profession. A thoughtful rational analysis yields one conclusion. The legal services business is ripe for reform and innovation. Market alternatives are the next step. In order for market alternatives to become readily available we need the market to open up and alternatives to become more accessible to clients, Someone needs to turn the light on. Without more traditional marketing and sales, how could that ever happen?
And yes, Moe, I do sit around sometimes and make silly stuff up, but that material I share with my kids. Knock Knock. Who's there? ... Hourly ... Hourly Who? Hourly Gonna Accept The Future?
Sometimes the litigator's "need to fight without any sense of what they are really fighting for" is client-driven. I recently received an inquiry from a spouse involved in a protracted divorce fight, who was patting herself on the back for having dragged out the case for three years - and who wanted to know if it was feasible to drag it out until she had been married for twenty years, at which time she believed that she would automatically qualify for permanent spousal support. The divorce was filed after seven years of marriage.
But the more typical example would be the defense firm hired by an insurance company to fight even clear-cut cases of liability. Most insurance companies have apparently concluded that it is cheaper to engage in protracted, unnecessary litigation prior to settling a case, than to simply settle the case for a fair value without involving the courts. Malpractice litigation is almost comical, in regard to the number of hurdles placed between the legitimate malpractice victim and recovery - a tragic comedy, which unquestionably drives up cost and delays justice.
Posted by: Aaron | 2005.12.28 at 11:01
What other profession or industry other than medicine has as high of barriers to entry as three years of education for each individual which might cost $50k - $100k? As a recent sole practitioner I agree that the costs to actually set-up a practice are relatively low but that initial hurdle is steep.
Posted by: Peter Olson | 2005.12.28 at 11:57
Moe: I appreciate your comments. We have no size limit here.
You note: "The simple fact is that individuals and small businesses in America are declining in real income and cannot become an a source of new business for law firms of any size."
By reducing the overall cost of legal services using technology, I have increased the size of my market. What used to cost $10,000 (with an appropriate margin for profit) can be done for half that price (with the same margin). By reducing costs, I have gained access to a much larger market for services.
By the way, I was a partner at one of the largest law firms in my town of 50,000 people. In my first year in my new practice as an independent practitioner, using alternative billing methods and focusing on delivering quality rather than shear quantify of hours, I will make more than I ever did before. My overhead is low. My ability to deliver services is way beyond what it was at my old firm (largely because of our unique use of technology). And I'm not paying for other partners who did little work and got paid a lot.
Posted by: GAL | 2005.12.28 at 18:57
Moe: If you had to make one book recommendation for me to read this new year (that I can purchase on Amazon.com), what would it be?
Interestingly, I started my new firm because what I saw in the legal profession was a lack of inspired capitalism. I saw power. I saw control. I saw grasping. I saw holding on. But what I did not see was much true or inspired innovation. And following up on your comment above. I saw little differentiation.
When I listened to clients, I heard some troubling things. They had no real information to make a decision about what law firm to hire or why. They had no real metrics from which to make informed judgments (except the old staid and true "I heard they were real bastards"). They had no real measurements from which to judge whether their attorney was doing a good job, or delivering hours of work in an efficient manner.
Clearly, the mainstream legal market has not asked for much more from lawyers than what lawyers have been delivering for the last two decades. But I see lawyers and law firms as capable of much more than they are doing.
You could not be more correct about technology and lawyers. Technology will never make a bad lawyer a good one. And you certainly don't need technology to be a good lawyer. But a lawyer who is able to harness the incredible efficiencies of technology without being subsumed by the distractions of technology will have market advantage.
You and I have struck a nerve in each-other because I think we are essentially talking about the same thing, not law but capitalism. When I talk about my firm, I am really talking about all sorts of businesses. I am talking about the shift of power from corporations to individuals, from people who simply have power to the people whose talent drives mankind forward.
So I am interested in your book recommendation, because you come at this topic with the knowledge of an academic who has studied its economic principles. I come at it as a street smart fighter who has worked in the highest ivory law towers and from the raw cold streets. I come at it in part as an anarchist who believes he can be a factor which helps change/evolve the world. But my views don't come from or accounts for the books you have listed in your various posts. My instincts tell me what capitalism is and is not. I believe capitalism is as innate in mankind as is our search for God. Perhaps it is time I started studying the science of the beast I am battling?
And thanks for causing us all to pause on this important discussion. Have a safe and happy new year, Moe.
Posted by: GAL | 2005.12.31 at 10:49
Moe: I hear what you're saying about capitalism, but does that mean that all the talk in law school we heard (me three years ago, you and GAL much longer ago than that) about the law being a "noble calling" and a quest for justice was just so much self-serving hot air? Do you mean that we're in the legal business only to make money, not help people? If so, why not get an MBA and go the corporate route, since you can make so much more money as an MBA than as a lawyer? Do those couple of pro bono cases a year take care of your ethical obligations as attorney so you can spend the rest of your time billing your clients to death?
GAL is correct that the current billing model of "not guilty until proven broke" (something of a non sequiter but it's correct and any lawyer who's been out there doing civil defense work knows exactly what it means) has created a parallel opportunity for him to differentiate himself from the pack by delivering better services at less cost to the client. Moe, what could be more Wal-mart than that?
But GAL might not like what's in Pandora's box once it's open. Because if this profession gets deregulated into a business in place of a guild, the public is going to find out that a lot of what we do can be done cheaper and just as well by people who aren't in the guild. Look at what Nolo Press and LegalZoom are doing. Or CPA firms who provide ancillary legal services to their clients. If we give up our monopoly, somebody else is going to be pulling the strings. GAL will probably do fine because he's a top-flight litigator, but those of us who are competent and thorough but not legal geniuses aren't going to be real happy to be shunted into the legal equivalent of working for Wal-Mart.
Posted by: Loretta Crum | 2006.01.02 at 12:51
Maybe I'm reading too quickly... okay, I'm skimming... so I may have missed something, but... Microsoft is in a different labor market than BigLaw. A law firm doesn't have to deliver more profits per employee than Microsoft, any more than does a McDonalds franchise. And Microsoft doesn't have to keep up with the salaries paid to the athletes in a successful sports franchise. They're hiring different people. (Also, profits per employee are not uniform across an enterprise, so it's okay that a janitor is less "productive" than a biochemist, even if both are employed by the same pharmaceutical research firm.)
Also, if anything but hourly billing is so easily defeated by delay, why are so many of the wealthiest lawyers in the nation billing clients almost entirely (or entirely) on the basis of the contingent fee?
Posted by: Aaron | 2006.01.05 at 19:29
I would add also that it is much easier for Microsoft to continue to profit from past employees' work than it is for a law firm. Brief banks are great, but can you imagine if you could patent a legal argument?
Posted by: Aaron | 2006.01.06 at 00:30
Loretta: I hear you loud and clear on the profession issue. Rest assured, while my toolbox is filled with instruments of capitalism, my motive is to inspire attorneys to recall that they are a profession. Luckily, my business model of focusing on the client rewards the profession as well. This discussion has evolved into one focused on capitalism. My point is that you don't have to be a pauper lawyer or bill every hours to make a very good living.
Posted by: GAL | 2006.01.06 at 06:57
Sure. They recruit the same Ph.D.'s out of the same technological institutes, after all.
Posted by: Aaron | 2006.01.13 at 17:00