Shifting the legal ecosystem

I will probably return to the theme of the legal ecosystem in the future, but this post provides an overview for now of where I think we stand, and what the future may hold — to the extent that prediction is possible in this complex system.

Change or extinction?

Servants' stairs at Calke AbbeyIn the metaphorical ecosystem of the law, firms are like organisms — needing food to survive as individuals, and reproduction to survive as a species If there is significant disruption in either of these, organisms become weak and eventually die out. This can happen in nature, for example, if there is a major external event, such as the K-Pg event, or if a predator becomes more numerous, as happened with many of the species hunted to extinction by homo sapiens.

Firms survive when they have a constant stream of people to work in them (supplementing or replacing others) and new clients (or at least new work from existing clients) to provide work for those people. Any significant movement by one or other of those groups to alternative forms of legal problem solving or to avoid the law altogether will lead to the traditional law firm model dying out. Even a slight shift could be enough to small numbers of  firms that don’t adjust to the new reality sufficiently quickly.

The currently prevailing narrative is that the traditional law firm model is moribund. The first problem with this is that there is actually significant diversity amongst firms that may appear identical from the outside — there actually isn’t a single business model even for traditional partnerships. Another problem with this narrative is that it assumes that firms have not already reacted (and continue to react) to their changing environment — many are in fact intensely aware of market pressure and are actively finding ways of dealing with it.

Putting those objections aside, however, is the environment changing enough to lead to the extinction of legal dinosaurs? In particular: are lawyers (and other staff) and clients behaving appreciably differently, and how are firms reacting to their changed behaviour?

Shift in which direction?

Probably the best description of the alternative models for legal services was provided back in May by Jordan Furlong, in a blog post entitled “An incomplete inventory of New Law”. Before looking at the inventory itself, it is worth repeating Jordan’s description of “NewLaw”:

any model, process, or tool that represents a significantly different approach to the creation or provision of legal services than what the legal profession traditionally has employed.

With this in mind, I want to consider the way that Jordan has categorised his inventory. The first distinction he makes is between new approaches to resourcing (“Aligning Human Talent with Legal Tasks”) on the one hand, and technology-enabled applications (“Applying Technology to the Performance of Legal Tasks”) on the other. I want to concentrate on the first set of these — mainly because the technology applications have a different potential to affect existing business models than do the resourcing approaches. (I am also more familiar with the resourcing approaches — as Jordan points out, those tend to be found outside the US, whilst technology development is more prevalent in the US.)

Jordan breaks down the resourcing approaches into three primary types:

  • New-Model Law Firms
  • Project/Flex/Dispersed Legal Talent Providers
  • Managed Legal Support Services

I want to group them slightly differently to help in thinking about their impact on law firms, their people and clients.

Looking at the businesses in Jordan’s inventory, I see the following groups:

  • Providers of a full spectrum of legal services, direct to clients
  • Providers of basic legal services, or personnel, direct to clients or law firms
  • Providers of legal expertise, direct to clients or to law firms

Full-spectrum legal services

Those businesses providing a wide range of legal services are closest to the traditional law firm model for those seeking legal careers — they are likely to have junior or unqualified personnel, who then gain experience so that they can take on more complex work within the same business. They can be distinguished from the traditional law firm model in one or more of the following ways:

  • Pricing — they may use a variety of pricing models, especially fixed-price or value billing, but not hourly rates
  • Ownership — rather than a partnership, they might be organised along more corporate lines (to the point of being listed publicly in some cases), or legal services may be provided alongside other professional services
  • Delivery — their provision of legal services across the board is based on a novel technology or process platform

By contrast, the traditional law firm is a partnership wherein client needs are satisfied in whatever way seems right at the time, and work is billed by the hour.

What kind of impact will the businesses in this first group have on the traditional firm?

Changes in ownership model will probably percolate into the wider legal market last — there are strong vested interests in partnerships that make it difficult (short of acquisition) to change the way firms organise themselves. However, some firms have become much more ‘corporate’ — relying heavily on professional management, for example — without ceasing to be partnerships. Ownership alone is also unlikely to be a significant factor affecting clients’ or employees’ choices, although the availability of legal and non-legal services together might be attractive for some clients.

Businesses founded on distinctive pricing models may find their territory invaded most quickly by the traditional firm. It is important to remember that pricing models are not necessarily a unilateral choice — very few law firms will have not seen clients asking for capped fees, or fixed prices, and most of them will have found ways of meeting those requests. As clients become more confident in using alternative pricing models, law firms will move quickly to adopt them. In this scenario the billable hour will die a natural death.

Which leaves alternative delivery models. Most of those models provide real benefits to clients, by way of improved service quality, cost or speed of work. It is sometimes harder for lawyers to see good reasons for changing their own ways of working. Clients may be able to force their existing law firms to adopt new pricing models, but they are unlikely to be able to make them change their processes significantly — few clients have sufficient leverage with their firms to do that. As a consequence, clients that want their legal services provided differently will have to choose firms that have already changed.

The way law is done, then, is the new battleground for clients — firms and other legal services businesses that meet new client needs will (slowly, but surely) start to steal the market from the old and staid.

What about people working in law firms? The picture here is much less clear. Paul Gilbert has written of in-house lawyers being in thrall to their law firms:  “a form of legal services ‘Stockholm Syndrome’ that plays out between law firms and their hostage clients.” I think there is a similar effect within firms themselves. The promise of partnership (at some distant point in the future) leads many associates to put up with poor (almost oppressive) working practices in the hope that there will be ‘jam tomorrow’. Some enlightened individuals will fight within their firms for changes in the business. If they cannot make the firm change, it is easy to jump to another firm that will change — or to another business altogether. My uncertainty comes from not knowing how many of the enlightened there are. That is the talent pool for new legal businesses, but it might be quite small. If so, that will be a limiting factor for NewLaw.

Services at either end of the spectrum

The other two groupings (providers of basic legal services and of legal expertise) face some of the same issues as the full-spectrum businesses. However, they could also affect the legal ecosystem in their own ways.

At the basic end, we have businesses that specialise in providing low cost legal support, possibly at scale. They may work as stand-alone businesses using an outsourcing model, or as agencies for freelance workers. (Some firms have created a similar capability within their own organisation to achieve cost/efficiency savings.)

At the other end, we have businesses who provide high-end legal expertise on a consultancy basis (or as an agency for experience lawyers).

Both of these types of business can provide real value for their customers — whether they be law firms or in-house legal teams. The demand for legal services is not always consistent, so having a readily available flexible resource to deal with increases in demand when necessary is a real boon. However, their impact on the market for legal personnel is currently minimal. (Remember that there are nearly 130,000 solicitors in England and Wales.) There is probably also a natural limit to their growth because of the available talent. The businesses providing alternative resourcing of experienced lawyers depend on a flow of such lawyers from law firms and (less often) in-house teams. Those providing basic services have a larger pool to draw on (given that their personnel need not be qualified), but unless they offer some sort of career progression they will need to dip into that pool very frequently as their people move on.

If the alternative resourcing businesses are limited by the supply of personnel, client demand might exceed the service available, leading to frustration and a grudging reversion to the service provided by traditional law firms. One way for these alternative resourcing businesses to ensure that supply of talent can be maintained would be to build strong links with others. For example, if basic service providers suffer from high rates of churn amongst their people (resulting in high recruitment training costs and stagnation in service provision), they might benefit from finding ways of offering their better staff a route to qualify as lawyers (or into related professions). This could be done in association with their in-house clients that need junior lawyers and can’t afford to train them. Likewise, those businesses that depend on a flow of experienced lawyers could turn to the same in-house teams just as their lawyers start to become jaded from working just with one client.

Looking forward

In a previous post, I pointed out that over 90% of trainee solicitors were trained by law firms, and a third of those were in the larger firms. I don’t know, but I would guess that most of those trainees embarked on their careers aspiring to become a partner in the same firm. That was certainly the predominant view amongst my peers in the 1980s. In the event, many of them in fact moved to different firms to become partners. And some moved in-house. As long as those expectations remain, it is likely that the legal ecosystem will only change slightly at the periphery. Despite the existence of alternative career patterns, the cradle-to-grave traditional law firm will continue to be the aim for those embarking on a life in the law unless the alternatives can show themselves to be significantly more attractive. Remember Jordan Furlong’s definition of NewLaw only required the new business to be differentbetter is harder.

As things stand at the moment, then, I would be surprised if law firms died out altogether. There will be some movement towards new ways of delivering legal services. Some of those new ways will be adopted by firms themselves, as well as being offered by new businesses. The least flexible, most traditional firms will probably fail as their clients and people migrate to better places. Some clients will turn their backs on traditional firms altogether, for all sorts of reasons. Similarly, some people seeking a legal career will choose not to fall into the traditional rut. But I suspect many (possibly most) clients and people will stick to the model they know.

The fantastic thing is that there is a greater choice of legal services now than ever before — for clients and for people who want to work in the law. The real change in the legal ecosystem is that the traditional law firm has lost its dominance force. People and clients will be responsible for the shifts to come. We cannot predict the direction of those shifts without knowing how clients and people will reaction to change.

[The image at the top of this post was taken in the former servants’ quarters of Calke Abbey, near Derby. It seemed appropriate, given that Calke is such a good example of the way the stately home declined so quickly in the 20th century, even without worrying about the servant problem.]

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