{"id":692,"date":"2010-02-16T10:39:53","date_gmt":"2010-02-16T15:39:53","guid":{"rendered":"http:\/\/www.commerciallawinternational.com\/?p=692"},"modified":"2010-02-16T10:39:53","modified_gmt":"2010-02-16T15:39:53","slug":"the-business-of-law-hot-topics-and-emerging-trends","status":"publish","type":"post","link":"https:\/\/www.commerciallawinternational.com\/?p=692","title":{"rendered":"The Business of Law: Hot Topics and Emerging Trends"},"content":{"rendered":"

This is a post that\u00a0recently\u00a0appeared on Slaw<\/a> written by my friend Omar Ha-Redeye which I believe would be of some value to my readers. Enjoy.<\/p>\n

by\u00a0Omar Ha-Redeye<\/a> on\u00a0February 14th, 2010<\/em><\/p>\n

On February 9, 2010, David Cruickshank spoke at UWO Law on \u201cThe Business of Law: Hot Topics and Emerging Trends in the Legal Profession.\u201d \u00a0Cruickshank is a partner at\u00a0Kerma Partners <\/a>in New York City, and provides professional advice to law firms and other services.<\/em><\/p>\n

My notes from his talk follow.<\/p>\n

Threats and opportunities in Canadian Legal Market<\/strong><\/p>\n

Canada is still identified as a resource economy, but also innovative in terms of technology exports.\u00a0 But if you look at the size of the TSX in comparison to other exchanges, it is still focused on resources and commodities.<\/p>\n

On the transactional side, there is large consolidation of major companies, such as aluminum and energy.\u00a0\u00a0 Many of these transactions are driven from New York, Shanghai, and London.\u00a0 Realistically, Canadian firms do not drive these transactions.\u00a0 \u00a0Although\u00a0Torys LLP<\/a> has a New York office, they are still small compared to other firms there.\u00a0 Those that do set up offices around the world are usually following their clients around the world.<\/p>\n

Even though you have purchases and consolidation of Canadian firms, they are being driven by American law firms.\u00a0 Canadian firms just do not compete in world financial centres.<\/p>\n

The opportunity for Canadians is in deleveraging.\u00a0 Companies are selling others in Canada.\u00a0 And even though these are being run by New York, Houston, and London firms, they are using some local counsel. \u00a0\u00a0There are opportunities to acquire clients in New York, the U.K. and Shanghai.<\/p>\n

Another approach is to identify start-up resource and technology companies, and grow with them.<\/p>\n

Opportunities in dispute resolution and litigation<\/strong><\/p>\n

The traditional skill set are harder to acquire, because there are fewer trials available.\u00a0 It\u2019s not unheard of for a 7th<\/sup> year associate in New York to be considered for a partnership and have never done a trial except for some pro bono work or junior work on a trial, largely because so many trials settle.\u00a0 It\u2019s difficult to get a reputation in litigation this way.<\/p>\n

Historically litigators could excel by knowing where exactly to find information and specific documents.\u00a0 But now a paralegal can pull this up with a simple word search in a matter of seconds.\u00a0 Those memorizing and cataloguing skills are obsolete, and the technology delivers this at a lower cost.\u00a0 Litigators will have to leverage other skills such as knowledge of procedures and judges.<\/p>\n

Large consolidated client organizations are all trying to reduce fees, even before the recession.\u00a0 They are rejecting increases, and asking for discounts.\u00a0 Firms have to find ways to do discoveries cheaper.\u00a0 Firms are now outsourcing to Virginia and India to low cost centers.<\/p>\n

Litigation law firms are being divided into the haves and have-nots, those willing to invest large amounts of capital into litigation matters.\u00a0 And sometimes the have-nots are large 400 lawyer law firms.\u00a0 The sheer number of documents involved means that some firms cannot deal with large litigation cases.<\/p>\n

Law firms are undercapitalized.\u00a0 The investors are partners, who cannot raise enough money.\u00a0 They even pay their own payrolls.\u00a0 This makes law firms somehow weaker than other businesses.<\/p>\n

The opportunities to get the skill sets that litigators will need can be found in small organizations, pro bono work, and government settings.\u00a0 Associates in their 5th<\/sup>-6th<\/sup> year of practice in these contexts will have much more skills.<\/p>\n

But the most important skill in litigation day in and day out, which is often ignored, is interviewing skills.\u00a0 Negotiation skills are a close second.\u00a0 Cross-examinations are rarely used, even for experienced litigators.\u00a0 Young lawyers rarely recognize the importance of the right skills needed for litigation.\u00a0 Even in mid-trial, most lawyer s will not have major trials.<\/p>\n

Litigation turns on reputation, and writing on speaking are good ways to build that reputation..\u00a0 The best way to get known in litigation is to write about it, in news magazines, speaking at conferences, and blogs.\u00a0 You should have an area of expertise to focus on.<\/p>\n

Two\u00a0 Impacts of Technological Changes<\/strong><\/p>\n

Technological changes are impacting law firms in their recruitment.\u00a0 Potential recruits are asking about the technology that the firm is using.\u00a0 Some law firms did not provide their lawyers Blackberries, and these firms are now laughed at.\u00a0 Technology is needed just to keep lawyers happy.<\/p>\n

The other area of impact for technology is in litigation, which has become incredibly technological.\u00a0 \u00a0Most large firms now have litigation support programs that have an IT person and a lawyer that manages all the documents.<\/p>\n

In the U.S., demonstrative aids like videos and accident reconstructions, are allowing for sophisticated trial demonstrations in the court rooms. \u00a0\u00a0Jury selection and the science of making an impression on a jury are becoming crucial for trials.<\/p>\n

Holland & Hart<\/a> in Denver, Colorado put $1.2 million into a studio to create these aids, giving them a competitive advantage in their region, which has turned into a business of selling these aids to other lawyers.\u00a0 It created a business within a business, paying off their costs.\u00a0 But making the initial investment was probably a tough sell for the firm.<\/p>\n

One of the initiatives that\u00a0Gowlings<\/a> undertook in the mid-90s was a technology platform that let a client know the status of any litigation at any time.\u00a0 During that period, it was a very sophisticated system.\u00a0 When clients then considered seeking other counsel, they decided to stay with the firm when they realized that they had developed an affinity for the system, and would benefit from it elsewhere.<\/p>\n

Firms need to be ahead of passive technology, but also interactive with the client and ahead of embedded technology.\u00a0 Getting embedded with your client means investing in them, keeping the property in the system that ties them into you, and thereby making it very difficult for them to leave you.<\/p>\n

Business analytic software such as\u00a0Redwood<\/a> help make better business decisions like how to staff work by looking at billing and lawyer utilization hours.\u00a0 By analyzing what parts of work are profitable and why, firms can develop strategic decisions by modelling different ways to plan work.\u00a0 Although it started as a way to make a law firm more profits, but it is not being used more defensive tool to deal with lower RFPs and still be profitable.<\/p>\n

Individuals have an enormous advantage, because many senior lawyers are still working on their keyboard skills.\u00a0 They are more than willing to push it on to junior associates, who should seize the opportunity.\u00a0 Few firms are even familiar with tools like Microsoft Project.<\/p>\n

Partners are getting over 500 e-mails a day, and they are not reading them.\u00a0 They are inundated by e-mails.\u00a0 You have to catch people in other ways.\u00a0 Lawyers will be more valued if the look for direction in person.<\/p>\n

Even e-mails have to be structured when dealing with busy partners.\u00a0 \u00a0Put the major issue in the first paragraph.\u00a0 Writing skills and analysis still count, and clarity is needed.<\/p>\n

Young lawyers can also benefit greatly from planning tools, learning them and offering them to senior management.<\/p>\n

Speed of conversion:\u00a0 innovative to commodity work<\/strong><\/p>\n

Lawyers are moving between practices of different sizes, and the practices themselves are becoming commoditized for smaller firms.<\/p>\n

In the U.S., the rise of white-collar crime has resulted in small firm criminal lawyers joining big firms.<\/p>\n

Hedge funds in the U.S. have become a commodity work.\u00a0 You can gear it up with set forms, and it used to be something only for large firms.\u00a0 For high-end bankruptcy cases, they become public the day they are filed.\u00a0 These lawyers are giving away their knowledge immediately, and have to be more innovative in the way they do their work.<\/p>\n

Once a lot of lawyers realize they are competing for the same service, it drives prices down.\u00a0 By making the service more automated, firms can save themselves and their clients money.<\/p>\n

A number of small employment law boutiques across the U.S. have linked up to become national law firms.\u00a0 They have very little real affiliation, but can tell a national employer that they can provide regional advice for a third of the price of large firms.\u00a0 Their success has come from their ability to organize themselves differently.<\/p>\n

The trick for large law firms to stay lucrative is to get in get in on the front end of innovative work, and ditch the commoditized work that will be picked up by smaller firms.\u00a0 The challenge is how do you reinvent yourself and find your skills in a new way. Nimble lawyers do this all the time, but it is a tough thing to do.<\/p>\n

Strategic positioning in the legal market means looking at emerging and growth markets.\u00a0 Jumping into the emerging markets come with some risks.\u00a0 They might not take off, and may have little returns.\u00a0 In preparation for Y2K a number of lawyers branded themselves as Y2K lawyers, but that specific market never really emerged.<\/p>\n

If a large firm is on the front edge of a growth curve (usually a year to 18 months), they will usually do very well and can make a lot of money.\u00a0 At this point the purchase of their services will not realize that a choice of people who will do it for less even exist.\u00a0 They assume it is innovative, and assume that you will be charging the highest rates, and will pay it.\u00a0 It\u2019s only after that they realize they can go elsewhere for less.<\/p>\n

During the mature stage of the market, the growth has tapered off.\u00a0 Firms have a regular client who comes back to them again and again.\u00a0 But this mature phase is getting increasingly slimmer, before turning into the saturated phase.\u00a0 Other firms come in, and drive the price down based on their ability to commoditize the work.<\/p>\n

Clients will say in the saturated phase, we love you for this cutting edge stuff but we\u2019re going to use a boutique firm for forming companies, convert income trusts, and other activities where we\u2019re getting it for a third of the price.<\/p>\n

Where large firms want to be dominant is in emerging and growth markets, but it means taking on some risk.\u00a0 They should get out before saturation.\u00a0 Young associates should also be asking law firms what practices they are in, and get close to partners involved in emerging and growth markets.<\/p>\n

Some of these markets are cyclical.\u00a0 So although bankruptcy lawyers are a hot commodity right now, in a few years they will be looking for work.\u00a0 Smart bankruptcy lawyers develop litigation skills to move to those areas of practice during downturns.\u00a0 M&A work is similarly cyclical.<\/p>\n

Four areas of pricing of legal work<\/strong><\/p>\n

The traditional pricing in law is billable hour.\u00a0 There is some contingency work in Canada, but does not count for any significant percentage of revenue in Canadian law firms.\u00a0 Economics for law firms are driven by the ability to bill.<\/p>\n

Associates tend to cost firms for the first two years, and only make them money after that.\u00a0\u00a0 Firms want to make as much billable hours out of associates after two years of practice because that\u2019s where they make the money.\u00a0 Before that, they\u2019re investing in these individuals.<\/p>\n

But the economics different in Canada, since lawyers are a low cost to firms as articling students.\u00a0 Canadians become more profitable about the 2nd<\/sup> year of practice.<\/p>\n

Law firms used to be able to increase annual with impunity.\u00a0 The annual rate increased, and the client passively accepted it.\u00a0 Seniority was another basis for charging more, especially in litigation.<\/p>\n

Clients are now pushing back.\u00a0 They want results and asking for discounts.\u00a0 Corporate legal departments run by lawyers from inside firms and are seeking value.\u00a0 They are able to pressure firms based on their knowledge of those firms.<\/p>\n

From the perspective of the client, the legal department is a cost center.\u00a0 Everyone hates them at business meetings, especially when litigation present.\u00a0 They are under big pressure to cut costs.<\/p>\n

One survey demonstrated that 20% of law firm revenue in NYC is under scrutiny.\u00a0 The\u00a0Association for Corporate Counsel<\/a> has a target by the end of 2010 of 25% fixed or alternate fees for corporate work.<\/p>\n

Law firms will have to wake up.\u00a0 The billable hour won\u2019t die, but how much will get paid is a different issue.\u00a0 How much gets paid affects profitability.<\/p>\n

Many years ago, other professional associations like accounting, management consulting, engineers all abandoned hourly rate for budget fees.\u00a0 \u00a0Law firms will have to learn to do the same.<\/p>\n

The implications for individual lawyers are that clients want value, but with value comes certain amount of risk.\u00a0 Clients want lower fees, but higher value.\u00a0 They are saying show us value, don\u2019t show us a million processed documents.\u00a0 Show us the value that you achieved for us.\u00a0 The new paradigm is trying to achieve the client\u2019s goal of value, but in some cases still getting a premium for some services.<\/p>\n

What are the options?<\/p>\n

Firms can consider discounts, but that means firms have to do something internally to adjust their economics, such as cut salaries or move to cheaper office space.\u00a0 But there are only so many internal controls that can be changed.<\/p>\n

Another option is what could be called the ostrich approach.\u00a0 Firms can try waiting for return of the good times, and continue raising rates annually, with all senior partners billing over a thousand dollars an hour.\u00a0 But this is a no-go for the short-term and clients are just not accepting it.<\/p>\n

A third option is progressive pricing.\u00a0 Firms negotiate a lower rate, but pay a premium for set successes.\u00a0 If a settlement is found for under a set amount of dollars, they will receive a predetermined bonus.\u00a0 In the current economy it\u2019s still going to be rare.<\/p>\n

The fourth option is protective pricing, where mainstream work is provided at project prices rather than hourly rates, and new revenue sources get in early in the curve with a low hourly rate that is increased over time.\u00a0 Clients recognize that they will face these increases over time.<\/p>\n

For lawyers this means that there will be more project fees, but law firms are woefully unequipped to provide estimates based on project management skills.\u00a0 Even when you show them rudimentary project management skills they are resistant due to their billable hour mentality.\u00a0 They cannot bill planning and managing, but can bill for a document, but this is the very skill they need for profitable practice.<\/p>\n

These issues also affect women in law firms, and the statistics related to female retention is abysmal.\u00a0 There is some hope from the accounting profession, where\u00a0Deloitte Touche<\/a> developed a\u00a0mass career customization<\/a> that allowed them to custom careers for women.<\/p>\n

Instead of thinking of a career as 60 hours a week times a number of years, firms need to look at it as a set of skills and experience that are developed over time.\u00a0 They can ignore the number of years and allow associates to get to the same place over different times and customize the work that they do.<\/p>\n

Instead of basing compensation on time, it should be based on skills.<\/p>\n

Skills in managing self and others<\/strong><\/p>\n

Law firms can actually make money on a project basis by properly using technological change, pricing, and proper management.\u00a0 It\u2019s increasingly important to bring a team approach to law firms.<\/p>\n

The key skills that are needed include:<\/p>\n

Time management<\/p>\n

Staff utilization; use support staff properly, challenge them<\/p>\n

Delegation and feedback skills<\/p>\n

Supervision skills<\/p>\n

Matter leadership; focus on specific issues<\/p>\n

Project management skills; will have to get from outside, can\u2019t get it in law<\/p>\n

Many law firms don\u2019t even know what a Gantt chart is.\u00a0 Project management skills will have to be obtained outside of a law firm, and brought into the profession because they simply don\u2019t exist in firms.<\/p>\n

These skills are not appropriately taught in law schools, because you need to understand the complexity of the field to properly apply it.\u00a0 Instead, he focuses on 7-8th<\/sup> year associates.\u00a0 At present, many firms are run by stone age tools like issue lists, group lists, and often a magic markers on a wall calendar.<\/p>\n

Young lawyers will also have to take ownership by finding a solution, explaining why it is the best one, and explain how it will affect the client.\u00a0 \u00a0But these associates have to be diplomatic in how they introduce it, usually by making it useful to one partner.<\/p>\n

Law firms can be incredibly resistant to change, the response often quoting the amount of profit made in the past year.\u00a0 But these firms are profitable in spite of themselves, not because of their effectiveness.<\/p>\n

In a law firm the first question is always if anyone else in the industry has already done this.\u00a0 But even if it hasn\u2019t, that in itself is an opportunity.\u00a0 In the business world the mentality is exactly the opposite.\u00a0 The recession will invariable force firms to take on more risks and consider new ideas.<\/p>\n

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