By Jordan Furlong, Principal, Edge International & 2015 ALPMA Summit keynote speakerPart 1 of this post, discussed the forces driving change in the legal market, the emergence of 'NewLaw' and the implications for traditional law firms. This post discusses how traditional firms will adapt to this new environment.
Adapting to the new environment will be a three-stage process for most law firms: First will be the recognition that things have changed and adjustments must be made.
This recognition will occur first among firms whose financial results are suffering because of disruption from low-cost competitors and online resources, especially in consumer and small-business legal sectors. It will occur next among firms with large corporate clients that are slashing legal budgets, insourcing legal tasks to growing in-house law departments, and finding innovative and lower-cost options for much legal work both onshore and offshore. Last to feel the effects will be the truly elite and specialised firms dominant in their fields and best insulated from these changes — but even these firms will eventually find that insulation is not immunisation.
In the long run, there will be no exceptions.
But recognition is one thing; action is another.
Noticing these changes is the job of the firm’s leaders, but persuading their colleagues of what they see isn’t always easy: invariably, at least one partner will deny the reality of change or will insist that his or her practice area will be unaffected, and others will agree.
Gather evidence of changeThis is the point at which the leaders must gather evidence of change from across the profession and, more importantly, from within the firm itself, through a detailed examination of relevant financial metrics and leading indicators of financial trends. Not enough firms treat their internal financial data with as much respect as they should, or look at profitability from the perspective of the enterprise as a whole rather than individual shareholders. These are dangerous management habits, and in this environment, they can prove fatal.
Most significantly, firms should call in representatives of their key clients to deliver wake-up calls to any lawyers who prefer to keep hitting the snooze button. If law firms are in any real doubt about the new competitive landscape and its implications, their clients should be only to happy to enlighten them in the clearest terms possible.
The firm’s leaders must then do their toughest and most important job: authorise changes to the ways in which the firm acts within its markets, serves its clients, and carries out its work — and be prepared to tell recalcitrant partners that the path of least resistance leads to the exit door.
Making initial changesIf and when the firm is committed to and prepared for change, it’s time for the next stage: converting talk to action.
Many firms find they can make good early headway through relatively minor adjustments that bring their firm in line with NewLaw advances. Law firms of all sizes have been adopting legal project management, for instance, in order to bring some clarity and discipline to their internal operations. Other firms have embraced the opportunities created by flexible or agile workforces and have assigned some tasks to project or contract lawyers outside their walls. And even the smallest firms have learned to price both relatively straightforward matters as well as some more complex ones on a fixed-fee, rather than hourly basis.
Firms have carried out these changes without completely restructuring who and what they are, and have found their clients (and often, surprisingly enough, their own lawyers) receptive to these efforts.
But with limited investment come limited gains.
I believe that, to really adapt to the new legal market environment, a law firm must be ready for significant changes to its structure and culture. The heart of any law firm’s business resides in how it prices its work and how it compensates its people. Both of those elements are fundamentally connected to the way in which the firm goes about its work and generates value for its clients.
The vast majority of law firms still “price” most of their work on an hourly-labour basis and pay their lawyers for business acquisition and docketed hours. In this new market, these approaches simply are not fit for purpose. Pricing and compensation systems must adapt in order for a law firm to take advantage of the benefits of the NewLaw era.
Putting the client firstThe fundamental change that these adjustments will require constitutes what I think of as the third stage of adaptation: turning your law firm into a truly client-first business. Most law firms claim they already do put the client first, prioritizing client service above all. I don’t doubt their sincerity; but even a casual review of how their firms go about their affairs would fatally undermine such claims.
I would ask these firms: “Is the provision of excellent legal service to your clients what you talk about at your partnership meetings? Is it the basis upon which your lawyers are assessed and compensated? Are the metrics that your firm tracks and circulates internally based on excellent legal service to your clients? Do you award bonuses for excellent client service — or for other types of accomplishments?” You can provide the answers for your own firm — but if your firm is typical of the genre, I’m confident that I already know what those responses would be.
The biggest open secret of the traditional law firm is that it is run for the benefit of its lawyers, not its clients.
No business model that truly prioritized clients’ interests would entrench the billable hour as its pricing and compensation capstone, or pay so little attention to efficiency, quality assurance, or client communication, not to mention the happiness and health of its own personnel. A law firm that genuinely saw its purpose as the service of its clients’ interests would structure itself to achieve that purpose, would incentivize behaviours that encouraged that result, and would develop, entrench and enforce a culture by which the clients’ interests — not this partner’s profits or that practice group’s bonuses — are everyone’s paramount consideration.
If you want to see examples of law firms and legal service providers that live these standards and exemplify these characteristics, you need look no farther than your NewLaw competitors. Bold law firms like Marque Lawyers and Kain Corporate & Commercial Lawyers, and innovative providers like Hive Legal and Advent Balance, are fundamentally geared towards advancing the interests of their clients.
This is because the essential characteristic of all true NewLaw entities is that they are client-first, buyer-oriented entities. They recognize that law is now a buyer’s market, and that it will continue to be a buyer’s market for the foreseeable future. And they remember that the purpose of lawyers is to serve others first, ourselves second.
That’s why I don’t really see the NewLaw revolution as the end of all that is good and true in the legal profession; if anything, I see an opportunity for the profession’s renewal. I strongly believe that who we are — as lawyers, as professionals, as officers of the court and servants of the public good — must not change, or must evolve upwards to be even better. The best things that we’ve offered in the past — counsel, strategy, wisdom, trusted advice — will be even more valuable in future, and will constitute the foundations of the most successful law practices. Our ethics and professionalism have always been our watchwords, and that must continue as well.
But what we do and how we do it — those will change.
Transactional, clerical, research and knowledge tasks that have powered millions of billable hours in the past will leave lawyers and go to lower-cost but sufficiently competent substitutes, leaving a gaping hole in law firms’ inventory. Lawyer-first business models predicated on this self-serving inventory are stumbling, and soon enough, they’ll fall altogether.
We’ll have to adopt the methods and motivations of our NewLaw rivals, rewiring our infrastructure and reorganizing our workflow to encourage, not punish, the systematic and efficient provision of services and the prioritization of client interests. We too will have to accept that law is a buyer’s market, and adjust accordingly.
Making it workAll of this is possible. During our ALPMA Master Class in September, we plan to bring attendees up to speed on the latest changes in the legal market and the rapid emergence of “NewLaw” entities that have given clients a very different set of options for achieving their law-related goals. Most lawyers and law firms aren’t fully informed about these developments, not least because they’ve been happening so fast across an incredibly wide and diverse global industry landscape. The goal will be to get everyone on the same page regarding the nature of the competitive environment in which lawyers will be operating in future.
The second objective is to get firms thinking about how they can adapt to these developments — specifically, how they might integrate some of these new options and trends into their own firms. Industry incumbents, as Harvard’s Clayton Christensen established in his groundbreaking work The Innovator’s Dilemma, hardly ever come up with disruptive innovations themselves.
But incumbents, if they’re sufficiently alert and responsive, can incorporate these innovations to some degree into their own operations. We’ll hold breakout sessions during which law firm attendees will choose a specific aspect of NewLaw — possibilities include process improvement, artificially intelligent software, flexible workforces, non-lawyer service provision, and fixed-fee pricing — and discuss the advantages they would reap, and the challenges they would face, in adopting these innovations themselves.And most of all, we’ll talk about the shift in market power from sellers to buyers, and what that will mean for how law firms see themselves and conduct themselves. There will be less and less room in the coming legal market for the me-first lawyer and the lawyer-first law firm. That’s why I think the most important change of all will come in lawyers’ attitudes, our beliefs, and our hearts. Why are we in this business in the first place? Who are we here to serve?
Answering those questions correctly, and acting upon them with alacrity, is the real key to survival in a NewLaw world.
Editor's NoteJordan Furlong's keynote presentation "Rising Waters: How Law Firms Can Adapt To The New Legal Environment"at the 2015 ALPMA Summit,10-11 September, Gold Coast Convention & Exhibition Centre, will explore this topic in more detail.
Jordan is also presenting a pre-Summit Master Class Workshop on Wednesday 9 September on "Integrating 'NewLaw' into Your Firm", where together with Dr Neil Oakes, he will explain how traditional firms can import and integrate 'NewLaw’ features into their own businesses, in order to improve their own competitiveness. You do not have to attend Summit to attend this workshop. There are only limited places remaining, so please register now.
About Our Guest Blogger
Jordan Furlong is a lawyer, consultant, and legal industry analyst based in Ottawa, Canada, who forecasts the impact of the changing legal market on lawyers, clients, and legal organizations. He has delivered dozens of addresses to law firms, state bars, law societies, law schools, judges, and many others throughout the United States and Canada on the evolution of the legal services marketplace. He is a Fellow of the College of Law Practice Management and serves as Strategic Advisor in Residence at Suffolk University Law School in Boston.