Resolve to Evolve

January 1, 2005

With their antiquated business practices and lack of customer service, are law firms in danger of being left behind? Paul Gilbert says that it’s definitely time for a revolution.

People who call for revolution are often in the minority and easily dismissed by the majority who are comfortable with the status quo, but when the status quo is less profitable, less efficient and denies opportunity, those who call for revolution may not be in the minority for long.

I believe that over the next five to ten years we will see a revolution in the way we market, sell and deliver legal services, and as far as I am concerned, the sooner the better.

There is a feeling that lawyers have always understood revolution to mean “going round in circles”. At least when we hear, for example, that information technology is revolutionising the way we work it seems to send many of us into a flat spin. Professor Richard Susskind’s excellent new book, however, sets us all on a brilliant adventure where we can see that technology has already transformed the way we work and will further transform our ability to deliver and receive outstanding legal services.

Technology, however, only gives us the potential to be outstanding. To realise that potential we have to rethink everything about the way we work. In short, the legal profession must revolutionise its concepts of “product” of “service” and of “channel distribution” if the technology is to be truly valuable.

Simply applying technology to the old ways of working misses the point that where we stand today is no place to take advantage of the opportunities before us.

Today seems just like any other yesterday

Let me begin with a story to illustrate what is wrong with the way we work today.

You are the head of an important legal department conducting a high profile litigation case against an IT supplier for failing to deliver a new IT platform on time or with the promised functionality. Your CEO has a personal stake in the matter because at the AGM he promised his shareholders new levels of customer service on the expectation that the new platform would be in place by now. The FD wants his ?5m back and all the legal costs. The IT director fears for his job and believes that too many lawyers at this stage will spoil any chance of an agreed solution. The share price is wobbly and customers are getting restless.

So, no pressure on you then!

You have instructed a top firm; the Board, of course, have not heard of them but you know they have all the expertise needed. The firm has agreed a non-binding budget for the first three months but won’t budge from hourly rates. They won’t tell you how long the case will last except to say about twelve to eighteen months, and they positively snort at the idea of telling you how much the case will cost unless you are happy to deal in units of 0.5m.

As the months roll by and with the Board making your life more and more uncomfortable, what examples of outstanding customer service can you expect?

Increases in the hourly rates (because the Americans are here)? A change in key personnel (because the Americans have poached the firm’s best lawyers in any event)? Armies of junior lawyers and paralegals crawling disruptively over the business, printing off mountains of emails (because even now we need to see everything for discovery)? The lead partner going off to Malaysia because he has been hand picked by their government for a very important case (and therefore had to drop you like a stone) ? The QC you were advised to hire early (to ensure continuity) uttering the immortal pre-trial mantra “Of course, it will all depend on the judge” – And to cap it all no clear idea at any stage as to when it will end, what impact it will have on the business or what it will cost!

So, in this world where you are having your life made a misery by the CEO, the FD and the IT director, where you are paying for a never ending service of dubious value by the hour, at rates which can be hiked to pass on the law firm’s increased overhead, and where the barrister who will present the case has no idea whether you will win (but will of course get paid anyway), you may seriously wonder if law firms and the bar have the faintest idea about anything except how to screw their clients in the most charming manner possible.

I don’t think this is an extraordinary scenario; I actually think it is quite common. This is not service in any sense in which any other industry would understand it. It is self-serving, self-perpetuating, inefficient and exploitative. It has to change.

Where to begin the revolution

Hourly rates must die. They must be killed, burned and their ashes flung to the winds.

How can it possibly be justified to pass the entire economic and litigation risk to the client, give no contractual commitment on the totality of costs, be unable to set anything more than an indicative budget, have no stake in the outcome and have carte blanche to run a case with in-built inefficiencies which can only increase the profitability of the lawyer!

I can think of no good argument in which the concept of hourly rates suits the client.

I can think of no circumstances when, as a client, I was happy with hourly rates as a basis of rewarding the law firm.

It’s not that the overall amount charged may be unreasonable, it’s that you have no way of knowing until you get there whether it is reasonable or not. All the risk is with the client. It is a fundamentally flawed model that antagonises the client rather than supports the client.

Changing the structures

The problem of course does not begin or end with hourly rates. Hourly rates are a symptom of a flawed business model, and it is the business model that must change if hourly rates are to go.

The profitability of a law firm depends on the ability of individuals to generate billable time. The only way individuals can increase their profitability is to work more billable time or be paid more for the billable time worked.

Such a model is inherently restrictive; it encourages overpricing, a tendency towards quantity not quality, and rewards delay. It works against the interest of the firm as it grinds staff into the ground and it obviously works against the interests of the client as well.

My background is in financial services, an industry not without problems, but what sort of a service would a bank’s customers get if the only time they could buy anything was from a named individual in a particular branch during office hours.

Law firms have got to see that their “product” is not the lawyers they employ. Their lawyers are simply a distribution channel for their product. Until law firms grasp this point and start to develop other means of distributing their product we will continue to see the over-reliance on individuals, on their time and therefore on the cost of their time.

To take the financial services analogy further, law firms need to develop their products so that it can be distributed on-line through the web, through interactive TV, via call centres, specialist advisors, on CD ROM and through a branch network. They need to commoditise their expertise so that they can sell “off-the-shelf” or offer a bespoke service. They should franchise their brand and their expertise so that others can sell their products too. They need to diversify into property, training, publishing, consultancy, risk management and, yes, financial services. Anything at all in fact where the ability to be a creative problem solver is valuable.

Law firms have to break free of their self-imposed constraints so that their clients in turn are not constrained by the old way of purchasing services.

I want law firms to make money, lots of money. I want them to be so profitable they start to scare the accountants. I want law firms to invest their profits in their communities, in their staff and in developing even more opportunities to make money. But I also want a world-class service, on my terms, within my budgets and on my timescales. I want access to knowledge databases, I want to access my preferred distribution channel when I want it and I want to feel that I am in control.

But when?

When will all this come to pass? Who knows? Some firms will be doing some of this already but no one is going far enough.

I suspect that the pace of change will only truly accelerate when law firms can incorporate or even float. Then they will have investors demanding innovation, a healthy return on capital, and for waste and inefficiency to be driven out of every process. Then management will be forced to focus on clients not partners and when, just perhaps, in-house counsel are courted as potential non-executive directors for the new plc law businesses.

The law firms of the future will be unrecognisable from the law firms of today; the ones who get their first will make more money than they ever dreamed possible, and their clients will not begrudge them a single penny.

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