The Management

July 22, 2009 4:11 PM

Change or Die: Reflections on Richard Susskind's "The End of Lawyers?"

Posted by Ed Shanahan

By Michael Stern

Yes, things are bad out there. But this isn't just about the current economy, stupid. It's about the long-term survival of the Am Law 100 law firm as we know it. No matter how much we would like to dismiss the recession-fed clamor that the end--of the billable hour, and the highly leveraged business model built upon that eroding foundation--is nigh, we shouldn't do so. Things are going to get worse in the years ahead, not better. If we don't fundamentally change how we do business, we won't--and don't deserve to--survive. Don't just take my word for it, though. Pay attention to Richard Susskind's instead.

Susskind's The End of Lawyers? is a dry, sometimes boring, often infuriating, small-print book written by a supercilious academic who thinks "the law is not there to provide a livelihood for lawyers," but rather that our incomes are, at best, a by-product that society must incur as the price of the rule of law. But you should still read it. Why? Because Susskind understands the dynamics of change, and how to manage rather than be blindsided by them.

The impact of disruptive Web 2.0 technologies--the new means of instant, online communication and collaboration, from Wikipedia to Facebook--on the legal profession is like the impact of carbon loading on the atmosphere. While its consequences are as yet largely unfelt, the tipping point inexorably approaches. Like global warming, the accelerating commoditization of legal work is here, is real, and won't go away. (In this context, "commoditization" means that legal services are seen as packages of relatively standard, generic components, which get treated more like widgets in the client's supply chain--and hence are expected to be subject to the same predictability and cost-reduction imperatives that widget suppliers face--than as unique, one-off, price-insensitive "black boxes" with mysterious innards.)  "We"--the denizens of The Am Law 100--need to understand its dynamics, separate out the fatuous from the feasible, and get on with either inventing a future we're part of or risking being left out of the alternative. Susskind provides a useful tool for doing so, because he substantiates anecdotes with facts, and opinions with economic and sociological evidence.

An Oxford Ph.D. in law and computer science, emeritus professor of law, IT adviser to the Lord Chief Justice of England, and consultant to the British Ministry of Justice, Susskind is also a longtime gadfly of the profession. What Susskind foresees is the end of certain kinds of lawyers and legal work--"a future in which conventional legal advisers will be much less prominent in society than today, and, in some walks of life, will have no visibility at all."

The Am Law 100 firms are in the position of the great metropolitan newspapers a generation ago. When I started at The Washington Post in 1970, afternoon dailies around the country were folding under the impact of the TV evening news and changing commuting patterns in the suburbs. Circulation declines, already well under way from postwar highs, were accelerating as national and local TV news audiences grew. The big question was whether newspapers could remain "relevant" and survive as broadcast TV usurped their role of breaking the news and setting the daily agenda for the public sphere. Everyone worried but no one acted, given that newsroom margins were still running at 20 percent or better. Why not let the cash cow just keep mooing? Now, the Internet has finished what TV started. The tipping point for the demise of the urban daily has arrived, and papers are disappearing at a rate that is accelerating like a mudslide in a bad Los Angeles rainy season. A business model predicated on manufacturing a tangible product in urban factories staffed by union labor and delivering it via fossil fuel-burning trucks has failed in the era of costless electronic reproduction. The reporting and editorial judgment of newspapers remain unique and valuable, but they require new distribution channels and pricing models to survive.

The transaction management and dispute resolution services and wise counsel of elite law firms remain valuable as well. But why do we big-firm lawyers think we'll do better than newspapers as the onslaught of disruptive technologies accelerates in our marketplace? Selling time by the hour rather than results by value is as doomed in the long term as turning dead trees rather than electrons into information.

The billable hour is not a fact of nature. It's an artifact of the decline in lawyers' incomes relative to doctors and other professionals in the 1960s, according to the academic research Susskind cites. That's when the legal industry's management consultants started pushing time-based billing as a metric for determining what practice areas were profitable and a formula for assessing utilization and driving revenue. It worked spectacularly well, and lawyers' incomes (at least for those in private practice at big firms) have risen ever since.  We're now all part of the annual ritual of raising our hourly rates to keep profits per partner rising apace, a process that fundamentally conflicts with our clients' business interests. As Susskind puts it: "At worst, hourly billing can tempt lawyers to dishonesty. At best, it is an institutional disincentive to efficiency."

Efficiency, of course, is the hallmark of our clients' business operations, which have been transformed over the last four decades by information technology. But hourly billing, per Susskind, "rewards the inefficient practice that milks the work given to it and penalizes the well-run legal business whose systems and processes enable it to conclude matters rapidly." Even worse, it retards or precludes investment in the things that would make us better lawyers. What gets done is what can be billed, rather than what needs to be done. That means we don't spend enough time learning about our clients' industries and their actual business operations. And we don't spend time efficiently on internal communications or ongoing, routine client interaction because we can't charge for it by the hour.  Hence we miss opportunities to create more seamless interconnections with our clients' in-house departments. And we don't invest in management information systems, or management itself, for that matter (compare the way your practice group leaders are chosen and trained--if you have any management training--with how your clients handle their leadership selection process).

Big U.S. law firms have been especially resistant to change. "It is not easy to convince a group of millionaires within clear sight of retirement that their business model is wrong and they should change directions and embrace new technologies," Susskind acknowledges.  But law firms can no longer afford the war between efficiency and profitability. The Am Law 100's clients are no longer just complaining that our bills are too high or our annual rate increases untenable in the current downturn. They want us to behave differently--to be more like them in investing in efficiency and taking risks to accomplish more, and higher-value, output while using fewer resources. The End of Lawyers? demonstrates that it can be done. Susskind provides case studies of how transformative technologies like Internet search, social networking, electronic publishing, e-learning, wikis, and other forms of online collaboration can be harnessed to reengineer both how we work internally and how we interact with clients.

A first-tier law firm's value is delivering a unique combination of business judgment, market knowledge, deal savviness, and problem-solving ability. Some of our forms and other tools help us deliver this value, but do not constitute it. We need to develop more efficient, collaborative ways of collecting and sharing our collective wisdom, instead of hoarding our "proprietary" content and forcing clients to buy it via paying us hourly rates to repurpose it for them. Innovative firms will use information technology to streamline the production of routine work and to capture and disseminate their lawyers' collective knowledge and experience internally and to clients. This will enable them to provide improved training to their own personnel, and better, easier-to-use resources to their in-house counterparts. And these firms will strive above all to become more integrated with the business processes and risk management procedures of their clients, leading to more efficient prevention--rather than just resolution--of misconduct, noncompliance, and disputes.

These changes will mandate a change in the structure of law firms as well. The traditional leveraged pyramid will make less and less sense as the work of inexperienced junior lawyers is increasingly performed more efficiently by other means. Susskind expects big firms to stop doing or multisource routine work, and radically regear their leverage models as they shed (and stop hiring) junior lawyers. At the other end of the spectrum, he foresees the flourishing of boutiques of experts that can charge very high hourly rates or very high fixed fees because of their track records and high-stakes cases.

Resistance to these trends is futile, goes Susskind's Borg-like mantra, and history is on his side. Successful incumbent enterprises faced with disruptive technologies usually fail precisely because they are so good at doing things the old way, which remains profitable until it is suddenly too late to change. These once-leading companies are displaced by more nimble, more entrepreneurial firms that gamble on deploying new and more efficient business methods before they are fully proven and before the new markets they will create have fully emerged. Witness the fate of the music industry, which fought rather than embraced digital distribution and ended up under the heel of iTunes.

As science fiction writer William Gibson once famously said, "The future has already arrived. It's just not evenly distributed yet." The End of Lawyers? is a road map to the archipelago of legal innovation already emerging all around us. Ignore it at your peril.

Michael Stern, a former newspaper reporter and English professor, is a partner in Cooley Godward Kronish's technology transactions group. E-mail: [email protected].

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Michael, I too am reading Susskind's book. Your review and additional insights are excellent. I agree that it is tough sledding but well worth the effort. Best regards,
Bill Henderson

Your observations about millionaires skating to retirement is right on point.

I don't think you are going to see the bread and butter crowd leading the charge to a new business model.

What evidence is there of "disruptive technology" having a major impact on legal services? Abovethelaw maybe? I struggle to see how you can extrapolate that trend from other industries just because it sounds right.

A little late with the article, eh? Many have been discussing Susskind's idea(s) for quite some time. I suppose many were waiting to see whether resistance is futile after all. Welcome to the party. Better late than never, I suppose.

Excellent article and observations. Comparing law firms to the newspaper industry is particularly instructive.

Great review, well reasoned and wonderfully stated. I couldn't agree with you more.

Great article, but let's not make this more complicated than it is. The business model is not wrong. Instead, the world has changed. The cheese has been moved.

As an organizational behavior consultant, I know that the most common human response is to yell "Whoever moved my cheese, bring it back here right now!" While that response may momentarily lower our blood pressure a bit, it is not an effective one.

The question we should be asking is "what opportunity does a changing market present so that we can have the opportunity to dominate one or more niche markets like never before?"

The most recent free article on my blog (July 13th) speaks to this directly.

Great article and discussion!

Nice summary of Susskind's point of view. Susskind's focus and analysis is on Big Law, but his insights are even more relevant when applied to traditional solos and small law firms which are being battered by the likes of, other non-lawyer legal information web site,and disruptive attorneys who are learning how to deliver legal services virtually and over the Internet.

Lawyers are still mortal right? I mean, these experts who will become the privileged few that charge high rates, they will die, correct? And who will replace them? What institutions will take the place of large law firms and train young lawyers? Will the boutiques do it? If so, how will the costs associated with training these lawyers not be built in to the flat fees that boutiques charge? In short, law is like any other business--the customer will never just pay for the costs of producing the exact unit that he purchases, but will always have some R&D cost distributed to him as well.

This sure looks like an opportunity for some entrepreneurial types to "unionize" a large number of junior partners and senior associates across the country to create a strong, innovative "NewLaw" firm that practices under more of an experienced model vs. a leveraged model, focused on value, and driven by technical and business innovation. Some of them will likely realize that the concept of stewardship has been replaced by complacency and self-preservation by the "millionaires with clear site of retirement". Who wants to lead the revolution?

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