Everything in modern society is the result of a collection of decisions made by someone. Why shouldn’t that someone be you? —Tom & David Kelley, Creative Confidence
Many organizations today, including just about every law firm that isn’t in the Am Law 25 and all but a handful of law schools, are facing existential challenges. The culprit? Shrinking demand for most lawyers. The ninth most popular story on Above the Law in 2017 was about the declining demand for lawyers.
For most law firms and lawyers, creating marketplace value is elusive. My conclusion: The legal industry is crying out for an innovative re-design. Without it, the desire for using lawyers will cease to exist for many former consumers of traditional legal services. Design, existence, and value are inextricably intertwined. This is a hard lesson for many to learn. Law firms are not alone in this group. Approximately one-third of all U.S. companies are struggling to create value.
The 2018 Client Advisory by Citi and Hildebrandt Consulting, LLC projects an average of single-digit revenue growth with continued industry consolidation. While a few firms are doing very well, there is “a widening gap between the most profitable firms” and the rest of the Am Law 200 firms. The market for most firms is soft. Indeed, projections for the future are that law firm revenue will decline, while in-house and alternative providers’ shares of the market will increase.
Acquisitions and mergers often do not solve the problem. Often contributing are leaders who have not mastered and do not model trust, cross-cultural competence and cross-selling. The result is that these solutions often may make things worse.
A partner who left a recently combined firm explained, “as a partner in the acquired firm, I ended up in a satellite office of a satellite office. The two sides never merged. The [acquiring firm]expected its norms to control, resulting in significant partner attrition. Absent meaningful dialogue, trust will never form and cross-selling becomes grossly overstated.” Instead of creating sustainability, the combination ended in significant vulnerability.
The future for solo or small firms, which arguably are nimbler, seems no better. In 2014, Richard Susskind argued that these firms have no future beyond 2020. He also said non-lawyer ownership of firms was critical, and that many of tomorrow’s lawyers would not be lawyers at all, but would be replaced by technology or people in supporting roles without a law degree. Yet, apparently, 86% of these lawyers characterize their firm as successful. Perhaps success has been recalibrated. Only 25% of subjects in the Thomson Reuters 2017 State of the U.S. Small Law Firms selected overall profits as the primary measure of success. Simple math suggests that 75% selected something else. The report added that attracting and retaining client business continues to be the top significant challenge, while 71% of the lawyers with this challenge are not addressing it. Sure, the meaning of success is subjective; however, without a reasonable profit, we end up with a bunch of lawyers struggling to support themselves and their families.
Leaders continue to apply capacity solutions to complexity problems. If the problem is phrased as a shrinking demand for lawyers, the solution is fewer lawyers competing for clients. If the problem is phrased as the cost of legal services, then efficiency and reducing resource demand is a solution. However, a shrinking demand is also a symptom of an existential complexity problem, a sign that it’s time to redesign legal.
A capacity problem is solved by adding, subtracting or changing resources and processes. Resources, in addition to money, space, technology and time, include people: partners, their expertise and respective books of business; associates’ extra pairs of hands; and professional staff that support the organization’s operations. Process improvements streamline operations and improve efficiency. Acquisitions and mergers reduce required resources while expanding a geographic footprint, profit-per-partner, and practice area focus.
Complexity problems are like mint in your garden. Mint is a useful herb that expands its root system like a pernicious weed. The full extent of the root system is difficult to locate. It burrows under everything else in your flower bed. It’s a complexity problem. Its nature is ambiguous, complicated, and resilient. Sometimes, fixing the creep of mint means reinventing your garden. Solutions to complexity problems sprout from new information, ideas, and approaches.
Complexity problems often implicate identity. An example of this is a recent complaint against LegalZoom by a law firm, not a consumer, for the unauthorized practice of law. Based on the Thomson Reuters report, DIY legal sites continue to expand market share and compete with small law firms. The law firm’s weed is someone else’s mint. The real tragedy is not realizing that a lawyer’s time has been co-opted by a legal system that has created innovation barriers, like non-lawyer ownership of law firms, in an attempt at industry protectionism. “When ideas are in short supply, it’s tempting to become possessive or territorial and limit your options.”
Phrasing a complexity problem in a way that makes it sounds as though it is about capacity, such as “[t]he demand result is weaker,” “expense growth of 3.8% outpaced revenue growth,” or “lawyer productivity down,” results in fear-driven decisions and leads to incomplete solutions. When we focus on resources and processes, assume scarcity of legal work, and attempt to limit marketplace competition, we avoid any exploration of the problem beyond the surface. We never look at the bed of roots anchoring that problem in place. We never find possibilities and options for sustainable and transformative change. Instead, unfortunately, and all too often, if the issues are raised, the discussion ends before it begins.
One Solution: Skilling Upward
When you combine the technologies to research the law, design a legal document, and create an encrypted ledger (blockchain) of a transaction and its terms, it is easy to see how the existence of the traditional law practice is threatened. If the traditional law practice is drifting toward obsolescence, is any practice thriving?
The answer is obviously “yes.” The high-end transaction and litigation work practices are thriving. What makes these areas so hearty?
As described by Elizabeth de Fontenay and summarized below, a handful of firms appear to control a majority of the market share of complex corporate transactions. These transactions are characterized by agent-based negotiations in which lawyers play a pivotal role. The context of these transactions is marked by “sustained innovation in terms or rapidly changing market conditions.” Lawyers are actively involved in negotiating the transaction terms, many of which are unique to the market. These practice areas are robust as long as the economy supports complex corporate transactions. They have a powerful value proposition because:
- The law firm’s reputation substitutes for material information.
- The lawyers are regulatory compliance experts for specific clients and transactions.
- A lawyer who has had repeated experience with a certain type of transaction develops constantly updated knowledge about constantly changing terms for those transactions. That knowledge is difficult, if not impossible, for other lawyers to reproduce and for clients to find elsewhere.
These three elements combine into one powerful value proposition resulting from a deeply-attractive and intentionally developed brand identity, true expertise power (skills in high demand that few others possess), and a constantly-updated-and-impossible-to-copy database of critical knowledge.
If you want to reproduce their business model for success, ask yourself: Is there something I/we could sell that is built on the use of true expertise and experience that is extremely difficult or impossible for competitors to copy?
If so, then you have no need to defensively protect your practice from any other business model. If you can’t think of an answer to that question, consider exploring something else. This is true for lawyers, practice groups, law firms and law schools. Eighteen months ago, accountants were being told to shift into strategic and analytical roles or risk becoming obsolete. To this end ask: How should lawyers be shifting and “skilling upward?”
Finding Other Solutions: Leading to Create New Value
Value creation is a leader’s most important responsibility in today’s complex world, where the actions of a single person or event can reshape everything. Without a robust value proposition, industries and organizations cease to exist.
Value creation is built on a foundation of what motivates real people – what they want, need, expect, prefer, are interested in and concerned about. Everything is a possible opportunity. Leave your office and observe, experience and interact, because, as Ari Melber said, “there is no substitute for really talking to someone, going somewhere, or doing something.” Then ask good questions and synthesize your data.
Historically, lawyers were the technicians of change and the arbiters between citizens. They were sought out for advice by peers, who shared their background and values. The economic boom after World War II created new industries, new problems for business leaders and new opportunities for lawyers to assist or become business leaders themselves. The right to counsel in most criminal cases also increased the need for lawyers to help litigants navigate a maze of rules. Knowledge of history informs good questions.
Today’s problems and forces that are and will continue to reshape the legal industry include:
- The absence of discussion of the ethical duties of a lawyer to the profession, their entire firm, and society as a whole.
- An epidemic of chronic stress, high rates of depression, and high rates of substance abuse among lawyers.
- Widespread public mistrust and dislike of lawyers as a profession.
- The incorporation of continuous technological innovations that are profoundly changing almost every industry and our personal lives.
- New businesses and even industries built on new technologies popping up with regularity, with many examples of alternative legal service providers ready to help these new businesses.
When we can’t say with certainty what the problem is or how to solve it, we must simultaneously increase our knowledge of possibilities—what the problem and solutions might be. Observe and ask good questions. Question the truth of our beliefs about best practices, traditional business models, and notions of the value and values of lawyers.
Where to start:
- Talk to people to find out what they want, like, and dislike. Find out how they feel, think, and communicate and flex to their preferences.
- Observe where people struggle today. Ask about their struggle and distrust of lawyers.
- Ask them where they need help, counsel, or advice without adding in the limits of legal advice and representation.
This is more like a philosophical and empathic approach to problem-solving where attention is opened-ended and sense-making is focused on multiple interpretations. Problem-solving done this way incorporates innovation that comes from setting aside habits, beliefs, assumptions, and customs that inadvertently curtail our ability to understand the point of view of someone, who doesn’t like, trust, or see the value of a lawyer’s perspective.
The philosophical approach raises questions, such as:
- How could lawyers be the technicians of change again? What does that mean?
- What does it mean to be a lawyer? What else could it mean?
- What are the values of the profession today? How could they be used to build a bridge to new clients?
- How might espoused ethical ideals of a lawyer’s duties to colleagues, the firm, the profession, and society contradict the reality? What would it mean if actions were brought into alignment with the ethical ideals?
- Why don’t lawyers, professional staff, and clients feel loyalty to a firm? What if they did? What needs to change to bring loyalty back?
This approach is different from a more pragmatic approach that focuses on end results, a purely investigative approach that seeks out more data, or an advocacy approach that seeks to prove or disprove a point. Each approach has its time.
When we delve into the values of the profession, we redesign legal. Ben W. Heineman, Jr. said more than 10 years ago, “Graduates of law schools should aspire not just to be wise counselors but wise leaders; not just to dispense ‘practical wisdom’ but to be ‘practical visionaries,’ not just to have positions where they advise, but where they decide.” Redefine and redesign legal.
Creating real value is an imperative for leaders in the legal industry. It goes beyond pointing out the challenges and mistakes. It requires observation, curiosity, and a new and different approach to problem-solving. Let’s get started!
About the Author
Susan Letterman White is an attorney and an organization development/change management consultant. She is managing partner of Letterman White Consulting and a practice advisor with Mass LOMAP. Follow her on Twitter @susanletterman.