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December 29, 2008 5:50 AM

The Innovation Agenda: Are Lawyers Stuck in GM's Tire Tracks?

Posted by Susan Beck

The following article is the first of three parts arising from discussions at the Leading Legal Innovation conference in December sponsored by the Southern California Innovation Project at the University of Southern California’s Gould School of Law. Click here for Part II and here for Part III.

In mid-December, Professor Stephen Burbank of the University of Pennsylvania Law School addressed a group gathered in San Diego, describing two recent New York Times columns by Thomas Friedman that focused on the problems facing the Big Three automakers. In "How to Fix a Flat" Friedman lashed out at U.S. car makers for their resistance to innovation. In "While Detroit Slept" Friedman argued that these companies would soon be overtaken by new business models. “The most important rule of business in today’s integrated and digitized global market, where knowledge and innovation tools are so widely distributed, [is] this: Whatever can be done, will be done,” Friedman wrote. "The only question is will it be done by you or to you."

After recounting this, Burbank remarked, "I see some similarities in the legal profession." Around the room, heads nodded in approval.

The 30 people in attendance--which included law firm leaders, law professors, in-house lawyers, and entrepreneurs--had come to take part in the Leading Legal Innovation conference organized by the Southern California Innovation Project at the University of Southern California's Gould School of Law. Over two days, the U.S. auto industry's troubles emerged as a recurring theme. Was the legal profession headed down the same path due to its slowness to innovate?

“The analogy to the auto industry is perfect,” stated Fred Bartlit, with his usual conviction. The founder of Bartlit Beck Herman Palenchar & Scott added one qualification: “Lawyers are harder to change than car executives. They’re trained to find things wrong with a new system.” (Bartlit, it should be noted, has represented General Motors Corporation in the past.) Bartlit, who left Kirkland & Ellis 16 years ago to found a nontraditional firm, stressed that lawyers' behavior can only be understood by examining the science of paradigm shifts. "The last to change are the ones who were best at the old system."

No one in the room disagreed, at least not openly. The overwhelming consensus was that whether or not the legal profession is ready, change is coming, creating opportunities for the flexible and creative. Many agreed that the economic meltdown will crack the cocoon that has sheltered lawyers for so long. “A crisis is a terrible thing to waste,“ quipped Paul Lippe, quoting Rahm Emanuel. (Lippe, is the founder of the legal online community Legal OnRamp, and writes the Welcome to the Future Column for The Am Law Daily.)

Lippe and others maintained that innovation won’t come from the most powerful institutions, but from new business models. Preston McAfee, an economist at the California Institute of Technology and the only nonlawyer in the room, stated that most institutions are incapable of significant change. “Changing culture is very hard, if not impossible,” said McAfee, who also runs a research unit at Yahoo, Inc. As an example, he pointed to another transportation industry, boat makers. “Wooden boat makers resisted fiberglass,” he says. Because they couldn’t or wouldn’t adapt, they all eventually went out of business, with the exception of Chris-Craft. “It’s an example of how substitutes can roll over a whole market.”

In recent decades, law firms have had little incentive to alter a system that rewards them with multimillion-dollar incomes. One person who practiced at the most profitable corporate firm of all described the forces preventing change at Wachtell, Lipton, Rosen & Katz. “One reason I left was the difficulty making real change in an organization doing very well,” said Harvard Law School Professor Joan Coates; Coates was a Wachtell partner until 1997. As Coates explained, it wasn’t just the partners who clung to their model. “Customers wouldn’t let firms like Wachtell change,” he says.

Coates suggested that law firms might follow the example of big pharmaceutical companies that have created innovative research subsidiaries, often teaming with start-up companies. “I could see law firms setting up subsidiaries without endangering their brand, and upsetting customers,” he says. “That’s the only way law firms will pursue significant innovation.” Added Silicon Valley entrepreneur Craig Johnson, who recently started his second law firm, Virtual Law Partners: “You have to start from scratch to innovate. There are too many vested interests in an institution.”

Not everyone believed that law firms should suddenly try to reinvent themselves. Economist McAfee, who has worked with major law firms as an expert in high-stakes antitrust cases, says law firms still offer a valuable service, as shown by their profitability. “I don’t think it’s fair to tell somebody you need to change when they’re making money hand over fist,” he said in an interview after the conference. (He recalled with awe a law firm party he attended as a guest speaker. “They hired polo ponies and had one of the best fireworks displays I've ever seen!”)

Still, that doesn’t mean these firms will always succeed. “There’s a pretty good chance these are the wooden boat makers," 'McAfee says. "When a new technology comes along, they won’t be well prepared. There won’t be many Chris-Crafts.” Then why shouldn’t they change? The answer, said McAfee, is that it simply may be impossible. “Different skill sets and cultures may be needed for the new paradigm.”

In Part Two: A look at the technologies and practices that may test and transform the legal profession.

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Well, go back and look at Chris Craft again...They went from the largest with 15 plants worldwide through two bankruptcies and a buyout and now they are virtually down to one plant in Sarasota, having virtually closed a recent expansion in N.Carolina and for the next 60 days they will be making no new boats...

Even if they had jumped on the fiberglass road earlier, it is quite likely that they, like GM might still be in difficult straights today as there are a lot of people who still can't afford new boats...

But then there are a lot of people who can't afford RVs but there seem to be a lot of them on the road...perhaps due to a better industrywide marketing program .

P.S. You didn't tell us how to be better lawyers...We threw away all the books and turned the library into a computer room what else should we do to "innovate" ?

We are not a large group so a subsidiary doesn't seem right for us.

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