Sunday, 20 March 2011

I'm glad it's your end of the boat that's sinking - the legal department in five years time

Recently Private Eye ran a cover featuring Kate Middleton with a speech bubble saying: “I’m like, yah, so totally a commoner”. You could probably run a version of that joke for many lawyers: “I’m so totally a businessman”. Technically, it may be a true statement, but it doesn't convince. Your perception is all a question of where you're standing and to many business people, lawyers don't look all that business minded. That's probably because many lawyers are unconvinced that the practice of law should be too overtly business-like. It's the old divide between the professions and trade.

For a while now, people have been making predictions about fundamental change in the provision of legal services. Back in 2002, the Evening Standard reported: "During its short existence, Garretts had become a byword among lawyers for multi-disciplinary practices (MDPs) - that controversial union of lawyer and accountant which at one point promised a fundamental shake-up of the legal world” [emphasis added]. MDPs had been a major discussion topic in the profession in the late 1990s. Now we have the Legal Services Act and ABSs. How much change should we expect this time? I’m not sure. If you open your copy of Great Expectations, the attitudes of the lawyer Jaggers are still recognisable today.

I’m not in the camp that thinks that lawyers are bad at business. That’s plainly false. The UK’s legal sector ought to be proud of its success while, around it, many other sectors have gone backwards. In the 1970s, the UK’s car industry imploded. The staff of British Leyland described one of their cars, the Austin Princess, as a “flying turd”, a refreshingly honest comment from any company, but hardy an advertisement for British engineering. Then, during the 1980s and 1990s, the UK investment banks were systematically taken over, mainly by the US banks. Meanwhile, the UK law firms have continued to thrive, making a major contribution to the country’s balance of payments. When it comes to legal services, the UK is still on the field as a major player. Good.

However, change is coming, it’s accelerating and its source really isn’t whatever the MoJ and the SRA are doing in London. Technology is one major cause, notwithstanding the touching loyalty that property lawyers show for their fax machines. But the most dramatic change is in the world’s workforce. I'm writing this post at Heathrow on my way to Bengaluru, India. I first visited in 1988, when it was still called Bangalore and it lived up to its billing as India's Garden City. As a keepsake, I took a photograph of the Karnataka State Legislature, because I wanted to capture the immortal inscription: "Government Work is God's Work" above the portico ( Bangalore has changed and the work is now being done in the expanding parks of private sector technology businesses.

If you haven't been to India and China on business recently, it's difficult to describe what’s happening to the world. There is storm of competition coming from the East, the scale of which many people in the UK haven't yet fully understood. For example, in May 2007, it was reported that 300 million people in China were learning English. That's close to the entire population of the USA. Perhaps the easiest way to visualise this is to have a good hard look at a graph from the Economist showing the share of world GDP over the past 2,000 years For hundreds of years, India and China together accounted for around 50% of world GDP. The only rational conclusion is that they will do again. We just happen to have been living through the brief period when this wasn’t the case. Clearly the hundreds of millions of new participants in the world economy represent an enormous pool of intellectual capital. They are going to play a part in every sector, including legal services.

Having set the scene, what does this mean for in-house legal departments? Let’s turn to the list of challenges currently facing General Counsel. The storm of competition I’ve described is forcing all companies to innovate and be more productive. Every company is entitled to expect every function to participate in that effort. For that reason, near the top of every GC’s list is the interaction of cost, scalability and quality. In-house teams are, in absolute terms, cheaper than private practice lawyers in the same jurisdiction, but the in-house team is a fixed cost and there’s a big difference in how companies view their fixed and variable costs. In-house teams cannot be easily scaled up and down as demand fluctuates. Also, unless an in-house team is very large, it often lacks specialist knowledge in some areas of law or geographic reach. Law firms provide excellent specialist knowledge and some help with fluctuating demand, but the billing model remains essentially "time and materials" and law firms have done such a poor job of collecting pricing data (which is boring but important), that few of them really understand how to price fixed quotes. Many fixed quotes are therefore just very high, to ensure the profit is protected.  

Jurisdiction boundaries form a natural barrier in the legal profession but, nevertheless, work will flow to the people competent to do it at the most affordable price. As a profession, we need to start to look very seriously at our productivity and the mix of provision, including the balance of "buy -v- make", together with the type and location of internal and external resource. This effort is going to have to be led by General Counsel and the more enlightened leaders of our law firms, because, if we don't face into this challenge, CEOs and CFOs are going to make our choices for us.

It's important we don't get mired in internal bickering inside our profession. Change is going to be uncomfortable. Law firms are going to lose some work to LPOs and others. In-house teams are going to change shape. If we fight each other, we may emerge at the end of the next decade like the British car industry in 1980, blinking in the sunlight having missed what was really happening.
I'm soon going to be meeting up with some fellow Twegals for a chat about law firm marketing. My next post will be an evolution of some of the themes in this one. "If you're not doing segmentation, you're not doing marketing".


  1. Tom, it's a good post - the question I would have for you (out of interest) is how you think law firms should be undertaking the necessary research and perhaps more importantly training their lawyers to be able to give accurate (or as near as can be accurate) fee quotes so as not simply to take a guess and add 20%.

  2. Phil. Thanks for the comment. The question you ask reveals the extent of the problem - this is essentially a completely unknown concept in law firms. In most companies (depending on sector) there are whole teams of people devoted to pricing, sometimes in Operations, sometimes in Marketing. When you reach for a product on the supermarket shelves at £3.99, rather than £5.99, thousands of hours have been spent deciding how price and volume interact, based on data for equivalent items. In professional services, it's also possible to professionalise the approach. The really big services firms do exactly that. So, to answer your question, I'd recommend law firms don't try to teach something they don't understand. For larger firms, I'd hire this talent from Accenture, IBM, PWC, Deloittes etc. For smaller firms, I'd recommend getting whoever runs Finance (also a weakness in most firms) to go and see these organisations to ask how they do it. Tom