How Good Lawyers
Survive Bad Times
Trends Impacting the Practice of Law* *and, more importantly, what you should be doing in response to them.
By Jim Calloway
Director, Oklahoma Bar Association Management Assistance Program Director, Oklahoma Bar Association Management Assistance Program, Publisher, Jim Calloway’s Law Practice Tips (http://jimcalloway.typepad.com) and co-producer of The Digital Edge: Lawyers and Technology podcast (www.abanet.org/lpm/lpt)
12-1
When Sharon Nelson, Ross Kodner and I wrote the book How Good Lawyers Survive Bad Times, which was published by the American Bar Association in 2009, it was in response to the turmoil in the legal industry with huge layoffs in the legal industry, lawyers who had lost employment opening practices with no prior experience in law firm management and the general impact of the recession. The book contained a lot of tips for dealing with tough economic times, starting a law practice and embracing technology changes.
Obviously there are still a lot of changes sweeping our world. A lot of what lawyers do involves the processing and managing of information. Information technology is evolving and improving. This has to change the practice of law.
Today’s program builds on what has happened in the legal industry since the powerful impact of the recession and layoffs of 2008 and 2009. It now seems clear to me that the impact of some of these changes are more systemic than temporary and that the legal profession is in for more upheaval. This program is the outgrowth of How Good Lawyers Survive Bad Times. It is version 2.0, if you will, and sharpens the focus on solutions to what are now long term trends in the legal profession. I split my observations a bit between mega-major trends that I see sweeping upon us that seem to be unstoppable and trends in other law firms and businesses that merit your attention.
While I doubt that all of these predictions will come true in the next few years, I do believe the trends are clear. So let’s discuss the trends.
1) Slow economic growth (and the world is still flat.)
As previously noted, the calendar years 2008 and 2009 were marked by massive layoffs in large law firms. 2010 was only marginally better. 2011 has some more hopeful signs, but at this point, it seems doubtful that things will ever go back to business as usual.
I have no training or special knowledge concerning economics, so I can merely parrot the predictions of economists that say slow growth is in our future, assuming some new surprise doesn’t impact us negatively.
But I do refer you to The World Is Flat, a Brief History of the 21st Century by Pulitzer Prize- winning author Thomas Friedman, the foreign-affairs columnist for The New York Times. I believe that the logical case concerning the direction of change put forth by Thomas Friedman in his book is undeniable. But you do not have to rely on my word; you can read the book for yourself and make your own judgment. Friedman has been called the United States’ most important columnist.
Mr. Friedman explained in his book that one of the major implications affecting our future came from the dot com implosion.
At the time of the dot com boom, the prevailing view was that there would be a huge demand for Internet services and there would be a huge demand for additional bandwidth to support them. In reliance on this view, many investors built new fiber optic cables that ran under the Atlantic and the Pacific. Fiber optic cables have a huge bandwidth capacity. Unfortunately for those
12-2
original investors, those lines turned out to be far in excess of the immediately needed capacity and most of those investors’ projects went bankrupt.
These lines still exist, however, and are now in the hands of what the finance community calls “second buyers.” These are the entities which purchased the lines after foreclosure at a much smaller investment. This is why we hear so much about Indian tech support. This is why telephone service is incredibly cheap, because these high capacity fiber optics lines connect the world together and are largely unused at this point in terms of their capacity. With supply far outstripping demand, the price gets less and less. As more people can access loads of bandwidth, all sorts of creative ideas appear.
So, in a nutshell, this is the reason why we heard so much about tech support calls being handled in India. The capacity for transmission is very inexpensive and India has a well- developed system of higher education.
The developing world is crowded with people will to work for a week for less than many lawyers charge for an hour. If the work can be delivered over the Internet, many businesses will see this as a way to cut costs. This will be a challenge for the entire developed world, not just the legal community.
2) Downward pressure on legal fees
As the economic downturn worsened in 2009, in-house counsel found that their budgets were being slashed and they had to either cut back on outside legal fees. The pressure for more predictable fees went from an interesting theory to a mandate from corporate clients.
What if your clients all formed a union to renegotiate your legal fees?
Maybe they already have. Exhibit A is the ACC Value Challenge. http://www.acc.com/valuechallenge/
A discussion of changes in the legal industry would not be complete with mentioning the Association of Corporate Counsel (ACC). The ACC members are in-house corporate counsel who select and negotiate with lawyers for businesses. The ACC has over 23,000 in‐house counsel members worldwide. The ACC has been quite active in promoting the idea to its members that there should be changes in law firm billing and operating methods. To that end the ACC has developed and has been promoting the ACC Value Challenge.
"...the ACC Value Challenge is based on the concept that firms can greatly improve the value of what they do, reduce their costs to corporate clients and still maintain strong profitability." - Michael Roster, Chairman, ACC Value Challenge Steering Committee
The online address for ACC Value Challenge is http://www.acc.com/valuechallenge/ There are many papers for download and reading there. You need not be a ACC
12-3
member to download the papers. The papers outline approaches for negotiating with law firms, but also include suggestions for more efficiency within law firms.
But the ACC has gone far beyond just providing information. In December 2010 they issued a press release titled “Corporate Counsel Name 14 Newly Arrogant Firms” http://www.law360.com/topnews/articles/213339 The release begins, “They are inflexible on rates, refuse to discuss alternative fees and delegate high priority communications to associates: they are the law firms considered most arrogant by corporate counsel. And 14 firms have won the designation this year for the first time, according to a new survey.”
The good news about this is that the ACC has taken the position the law firms have to be encouraged to be more efficient so that they can deliver legal services on a more predictable and less expensive basis. Many of the ideas ACC espouses are incorporated into today’s program.
3) Competition
a. Competition from more lawyers
As previously notes, the sharp downturn of 2008 and 2009 was marked by massive layoffs in large law firms.
Citi Private Bank, in its third quarter survey results of large law firms (including 86 of the AmLaw 100) generally showed flat revenues that had been maintained only through cost cutting and staff/lawyer reductions. http://amlawdaily.typepad.com/amlawdaily/2010/11/citithirdquarterresults.html or http://tinyurl.com/33gk979
This trend is probably not over yet. As many as 17,500 associate and staff attorney jobs could be lost or shifted as a result of staffing changes driven by pressures for lower costs over the next few years, according to a law firm consultant working for well-know large law firms consultant Hildebrand, as noted in a September 2010 article on ABAJournal.com. http://www.abajournal.com/news/article/17500_biglaw_jobs_are_at_risk_due_to_cost_pressure s_consultant_says/ or http://tinyurl.com/278pb59. Many of those impacted are law firm staff, but many are also lawyers and there will be a significant impact on the lawyers remaining in the firm who now have less staff support.
In April 2011, the popular blog AboveTheLaw estimated the so-called “lost generation” of attorneys who had their careers ruined during the recession by losing jobs at large law firms at about 10,000 since 2008. http://tinyurl.com/3n9dk8e
All of those lawyers will find work somewhere, it is assumed, due to their outstanding academic credentials. But they will displace another 10,000 lawyers who may have a more challenging time finding employment.
12-4
In addition, there have been several new law schools opened the last few years and they will, of course, be placing more new lawyers into our market. Many of them are burdened with large student loan debt. There is a lot of anecdotal evidence to suggest that the job market for law school graduates is very poor. Many lawyers with four to five year’s experience are applying for jobs that would have been considered entry level only a few years ago.
b. Competition from non lawyers (Gray areas)
A poor economy means that everyone is scribbling for business. We will see increases in the trends of CPA’s preparing business entity formation documents and other professionals encroaching into what we view as the exclusive practice of law.
While we may resent and resist that trend, it will be increasingly challenging to sort out what is the practice of law and what is not when services are provided by professionals with degrees and the work product is correct.
The way for a lawyer to cope with the UPL by other professionals is to provide a superior service, combining document production with legal advice, professional responsibility and other services that the competing professional cannot or will not provide.
c. Competition from non lawyers (Unauthorized practice of law)
Lawyers abhor the unauthorized practice of law. There are a number of victims who suffer the consequences of unqualified individuals doing legal work when they have no business doing so. Many lawyers still cling to the belief that the trend does not really hurt the business of the legal profession as more lawyers are hired to fix problems created by the non lawyers than there is legal business that is lost to them.
Do not count on that.
If we strip away our negative feelings about this, then we can examine it as a matter of supply and demand. We as a profession need to be concerned about the perception that legal services are unaffordable for the average person.
Otherwise we could become a jurisdiction that legalizes this practice.
The ironic thing, as most of us understand, is that not only does the current crop of “illegal paralegals” often do things incorrectly, but they also often charge as much as a novice lawyer, with professional training, skills and ultimate professional responsibility, might charge.
d. Competition from the free online information sites and online document assembly services, like LegalZoom
There are many websites that purport to give free legal advice. There are many websites that provide legal forms online for sale and some do it for free.
A recent trend is websites that lure lawyers into providing free legal advice under the guise of answering questions. While it may be tempting for a young lawyer to participate in these types
12-5
of activities if they do not have enough work, it is very risky due to the inability to perform conflicts checks or control who sees the information. For example, if you post that a statute of limitations for bringing a certain type of action is three years and a person in a state where the statute is tow reads that and delays seeing a lawyer for too long, could you be held liable for professional negligence? One thing we know for certain is that a lawyer could be in for a lot of grief if this occurs even though the lawyer might be ultimately exonerated. If you want to participate in these sites (referred to as “crowdsourcing” by teckie types) you might want to check with your professional liability carrier first.
As to the future of these “Free advice” and “pay for forms” websites, as long as there is a demand and the First Amendment, they will continue to exist and with improvements in document assembly, they may even improve.
4) Increased Self Representation and Non-economic Demands for Self Representation
This is a huge trend that impacts us all.
There is no doubt that everyone has a right to represent themselves. There is also no doubt that this is a bad idea for many individuals.
But as one individual recently told an interviewer, “I have a master’s degree. I’m not going to pay a lawyer to fill the blanks in forms.”
Today people want more control of their lives. Representing individuals is a more collaborative situation than it used to be.
As we will discuss later, the alternative to self help is value and great service.
5) Smarter Technology and Artificial Intelligence (e.g Watson)
A challenging prediction was published in the Connecticut Law Tribune on Nov. 29, 2010. The article quotes Fairfield, CT attorney Fred Ury offering his opinion that within a decade, there will likely be 10 percent to 40 percent fewer lawyers than there are today. He outlines his reasons for this rather startling prediction, which largely relate to new technology advances, globalization and shifts in the legal business marketplace. The article is online at www.ctlawtribune.com/getarticle.aspx?ID=38980. Mr. Ury is co-chair of an American Bar Association commission focused on the future of the profession.
He was quoted in the article as saying, “It’s a once-in-a-lifetime opportunity to be in the middle of the informational technology revolution. And there are going to be some casualties. Some lawyers who are into technology are very excited. Some say, ‘I’m glad I’m retiring.’ ”
If you watched Watson defeat the Jeopardy champions, you should have an idea that information technology advances are going to displace a lot of people.
6) Decline of “bespoke” services and the rise of commoditization ala Richard Susskind
12-6
I also suggest that the lawyer interested in the future of legal practice should buy (or borrow) a copy of The End of Lawyers? Rethinking the Nature of Legal Services by Richard Susskind. I certainly do not predict the end of lawyers in the face of the huge need for legal services in our society. But Susskind’s message certainly resonates as he does around 60 speaking engagements per year, including the keynote address at ABA TECHSHOW® 2009.
There is much to be gleaned from the book, despite a title that is off-putting to some lawyers. It highlights my personal belief that the impact of technology and greater standardization are two factors that will impact our future.
Here is a sampling of some of the reviews of the book on Amazon.com.:
"A wide-ranging book that is of value not only to lawyers contemplating their future, but to anyone whose work touches upon the law. Blending the futures of law and technology, Susskind's vision is far-reaching and tightly-argued, showing the displacement that lies ahead -- and the ways in which society can gain from it." Jonathan Zittrain, Professor of Law, Harvard Law School and author, The Future of the Internet.
"Richard Susskind has peered into the crystal ball and offers us a clear view of the future of the lawyering. His vision is based on his keen understanding of the role of technology in shaping our economy and our world. Some will be frightened by what he describes; the bold and the innovative will see a path to greater success in the future." Mark Chandler, General Counsel, Cisco
You can order the book from Amazon.com or read more about it online at http://www.amazon.com/End-Lawyers-Rethinking-Nature-Services/dp/0199541728 or http://tinyurl.com/9qupcz.
There are several themes to the book. A primary theme discusses clothing and how clothing mostly used to be created and crafted individually for the customer. This is referred to as bespoke. How many people have the luxury of purchasing customer fitted clothing today? Yet many legal projects are individually crafted when modern technology tools could allow them to be created more efficiently.
The next two items will be discussed in the presentation more briefly. But our legal system is based on support and confidence from the public and cooperation with other branches of government. To the extent the legal system loses either of those elements, it is a matter of concern and danger.
7) Public Perception and Frustration
a. Rhetoric-fueled concerns
b. Negativity Inherent in the system issues
c. Issues that concern us all- Too adversarial, inefficient , delay, funding issues
8) Government and Political Actions Negatively Impacting Legal Profession
12-7
9) Virtual law practice
Virtual law practice is a loose term that refers to lawyers who serve clients totally over the Internet with no face-to-face meetings except in rare circumstances. It is an interesting concept allowing for a great deal of flexibility, but at a cost of having a more limited practice focus.
I do predict that we will see more of these practices emerging, particularly from new lawyers who do not think it is practical or affordable to open a traditional law office. We will also see this as a workable business concept for the lawyer who wishes less than a full time practice as they care for children or aging parents.
This idea does allow a lawyer to operate throughout the state in which he or she is licensed, however. A lawyer in Guymon might never be able to serve a potential client in Broken Bow with traditional methods, but with a virtual practice it really does not make any difference.
I talked with a lawyer who operates a virtual bankruptcy practice in the state of New York. I asked him how he could possibly do that as it was my opinion that consumer bankruptcy clients generally required a lot of face-to-face meetings and hand-holding.
He responded that they also hated to take time off work to visit with a lawyer. So when they need a personal consult, he just schedules an appointment, often in the evenings, at their home. When it is time for the appointment, he turns on his webcam and calls them on Skype. They sit at their computer and see and hear their lawyer during the consultation. If they do not have a webcam, then he will not see them, but that’s not really the point, is it?
Right now, I see this as a very interesting life-style decision, but perhaps not the path to riches. The reason why I say that is that there will be a lot of time devoted to online marketing to build this type of practice. But it will be interesting to see if some law firms open virtual outposts as a part of a traditional practice. A firm with lawyers experienced in family law who have chosen not to do that work anymore might set up a virtual office for fixed fee uncontested divorces for example.
There are two “turn key” vendors for virtual law office setups- Virtual Law Office at http://www.vlotech.com and DirectLaw at http://www.directlaw.com.
The designer of one of those products, Stephanie Kimbro, has a blog at http://virtuallawpractice.org and, in 2010, published through the American Bar Association the book Virtual Law Practice: How to Deliver Legal Services Online. Ordering info is at http://tinyurl.com/4o4n8pk. (If you are not an ABA member, do not forget the OBA Discount Code – PAB9EOKB – which will give you a 15% discount.)
10) The only real Twenty-First Century Constant is Change
Lawyers live in an environment of change. Legislatures pass new laws and amend old ones. Courts issue opinions. New regulations roll out regularly. So hopefully, we will all be in a good position to deal with the many changes that are happening in our business environment and with our technology tools.
12-8
Now let’s look at some solutions and responses to these trends
Build better systems
Too many lawyers make a good living by working way too many hours. Even though the lawyers might enjoy practicing law, working so many hours can impact family time, leisure time, time for community activities and time for physical activity.
In addition, many lawyers work many “overtime” hours not to reach a planned target for business production, but because there are many things that have a current deadline. Or it could be that the law office is so chaotic that projects requiring uninterrupted contemplation must be done during the evenings or weekends.
Paperless systems
We will attempt to make the case for the digital law practice or paperless office this afternoon. Suffice it to say that paperless office processes are no longer optional. Paper client files cannot be backed up offsite to protect your clients and your business continuity. They cannot be remote accessed from home when one is caring for a sick child or there is inclement weather. File drawers full of paper files cannot be instantly accessed with a click of the mouse when any client calls on the telephone.
Practice management software
Tim Green will make a good case this morning for managing your practice with the Microsoft Office Suite, QuickBooks and a few inexpensive software and hardware utilities. But many lawyers (particularly those who are not solos) will find that they need the organizational help and structure of off-the-shelf practice management software.
Law firms need to embrace document assembly
One of the primary points that I want attendees to take away today is that the value of drafted documents is eroding. Many law firms spend the majority of the efforts preparing, proofing and revising documents. As we will discuss this afternoon, the tools are available now to automate much of this process and the time to do it is now.
This goes hand in hand with the next point on alternative fee arrangements. By automating the document drafting process and leaving the firm in an “hourly only” billing situation, you will dramatically cut revenues for no compelling reason. If, on the other hand, you determine that an average cost of drafting a particular document is $500 and you invest resources in automating the process, you can reduce the lawyer’s time involved in producing the document, often by as much as 75%. If you price the particular document at a flat fee of $475, then your client gets a better deal, the document is actually more profitable and you have free up lawyer time to do other billable work.
12-9
If market forces exert downward pressure on attorney’s fees, you can reduce price of the document and still maintain a profit. If you stay in your current business model, and you are forced to reduce prices, you make less revenue and have to work more hours. It is my observation that lawyers are already working too many hours.
Alternative fee arrangements
You will receive written material relating to alternative fees arrangements as a part of your bonus materials.
Make plans now to ramp up and ramp down
Keeping overhead low is a good business plan, no matter what the economy. But it is critical in uncertain economic times. As lawyers in private practice know, employee expense is one of the most significant items of overhead. However, most lawyers need staff support. Many tasks are best delegated and supervised.
But a lawyer’s business may ebb and flow. Without proper planning, a law firm risks being over- staffed on the one hand or having to turn away good business because of an inability to handle it. Law firms of the future need to perfect the ability to “ramp up and ramp down” as needed to deal with the workload. But temporary employees are often not effective unless there is an on-going relationship with an individual or the help required is simple such as typing, data entry or staffing reception.
Planning is the key. For example, if your staff becomes overloaded, it may be a wise decision to outsource some work on a temporary or indefinite basis. But when you are overloaded, there is no time to shop for a service. For example, there are several contract paralegal services available with names like Legal Typist. Ruby Receptionists is a well-regarded professional phone answering service. Most callers will not know the person answering the phone is not in your physical office. Quality temporary help is not inexpensive. But it often will be less expensive than a temporary staffing agency or hiring another full-time employee.
But you have to make arrangements in advance so you can start the service when you need it.
Small law firms have sometimes affiliated with other lawyers or law firms to handle matters that are extraordinarily complex or labor intensive. We will see more of this in the future out of necessity. But technology advances have made these arrangements more easily to facilitate with online document repositories “in the cloud” and other collaborative tools. It will become an even more common business practice for firms A, B and C to work together on a particular matter while firms C, D and F work together on another. Your attention is directed to The Lawyer’s Guide to Collaboration Tools and Technologies by Dennis Kennedy and Tom Mighell, published by the American Bar Association if you are not familiar with these tools. They have a website at http://www.lawyersguidetocollaboration.com.
Get your conflict checking fine-tuned
12-10
Conflict checking has long been an important part of law practice. Our tradition of absolute loyalty to the client and the client’s right to unconflicted representation are important values for us to protect into the future.
But the traditional practice of passing conflict memos around to all lawyers and waiting days for final approval may be inconsistent with today’s fast-moving business environment. As law firm alliances are put together ad hoc for different types of matters, instant conflict checking using a digital tool will become the norm. We are all busy. A law firm that needs your special expertise before they agree to take on a case may not wish to wait for days to see if your firm can be a part of the team.
We all understand that business life and business decisions move faster these days. We have to match that speed where we can.
Checklists a/k/a Office Procedures Manuals
To operate efficiently and accurately, a large part of the “supercharged” law firm systems will involve much more in the way of checklists and written documentation. Tim Green will address this topic. It may be the most important topic we cover today.
Looking at Virtual Services
I won’t hazard a guess at this point where this trend is going. I think people in smaller communities will continue to want to see their local lawyer in person for some time in the future. If lawyers delivering services virtually causes LegalZoom to go out of business that will be a happy day indeed. But we have watched Amazon devastate local non-chain book stores. This trend merits watching.
Focus on Client Service
We all appreciate good service. Most all lawyers do a good job of legal work.
The distinguishing criteria for success in the future may well be the non-legal aspects of how we deliver superior client services.
Returning phone calls, giving clear explanations and meeting deadlines are even more important in our future than they have been in the past. In addition, there are many people who are quite pleased to pay for ease and convenience. We want to be that service provider.
Everyone is busy. If we provide our clients with competent pleasant representation and save them trouble and time, they will always come back to our doors no matter what web sites might exist.
Delegation and automation
Delegation and automation will be a huge part of the successful lawyer’s future business operations.
Unbundling Legal Services
12-11
Small claims school
Take on the so-called “document preparers” with cold, hard facts.
You have professional obligations and a reputation. You have ethical standards and obligations. Who do you want to stand beside you and behind their work? A lawyer or some anonymous website document assembly process that may go out of business next week and has disclaimers that they are not giving legal advice plastered all over their website.
Build service packages that highlight your value.
While unbundling makes sense in certain contexts there is also a place for bundling.
Do not compete for the lowest level of service.
Here’s an example: “If all you want is a business creation document drafted, we can do that for you. A lot of people can. But what you really want is our new business startup package for $X. You get all of your documents prepared in a nice binder so you will have them together. We serve as service agent for you for the first year so we can let you know about any legal notices or process served and what it means. We give you our booklet we have prepared on starting a new business in Washington. We give you a calendar of all of the year’s tax filing dates. We also give you three hour of attorney time during the year for consultations only. So if you have a question, you can call us. We prepare minutes for you at the end of the first year, if required, and have an end of the first business year conference with you.”
Now what service do you think they will want? And what likelihood is it they will inquire as what another year of that kind of service costs?
Serving the underserved
Millions of Americans have legal problems, but either cannot afford or believe they cannot afford a lawyer. Greater efficiencies in law office operations may make it possible to deliver services in a profitable manner to these people. Strictly from a business standpoint, it makes sense to look at expanding services into areas that are underserved or underserved if you can do it profitably.
Here’s one idea as an example. The most significant contract and financial obligation that most people ever enter into is the purchase of a home. Yet because of tradition and pressures from real estate agents, the vast majority of these buyers never consult a lawyer during this important process. Instead de facto they rely on the advice of family, friends and their real estate agent. They often do not appreciate that the real estate agent is not their agent and is most interested in closing the sale so the commission is earned. (No wonder they want to keep those pesky lawyers out of the process.) A lawyer would have no other agenda than the best interest of his or her client. Is there an opening for “Homebuyer’s Lawyer” to market their services on a flat fee basis, which would probably be paid out of closing proceeds? In other states, lawyers are frequently involved in these transactions. How does that work and could it be replicated here?
12-12
Embrace social media
Yes, it can be challenging and time consuming, but it is essentially online advertising for free. More and more people are making purchasing decisions based on recommendations from their trusted advisors and friends online than from paid advertising.
Embrace mobile technology
We are having a session on smart phones today because these are now indispensable tools for lawyers. It is a 21st Century expectation that if you meet a client in the grocery story on the weekend, you will both be able to schedule an appointment for next week right then using your smart phones. If it is a new client, you run the risk of losing the business if you cannot do so.
iPads are a game changer. Soon there will be many more iPad clones from other manufacturers. We are only now learning the many interesting things you can do with an iPad. For just one example, see my blog post “New Ideas for Lawyers and Google Maps” http://tinyurl.com/3pfxt7b.
Conclusion
Let me end this paper with some quotes from that great philosopher, Yogi Berra, about the future:
“It's tough to make predictions, especially about the future.”
“If you don't know where you are going, you might wind up someplace else.”
And, particularly related to today’s topic: “The future ain't what it used to be.”
12-13
12-14