Legal Disruption Tipping Point: Why Do I Feel Like a Taxicab Driver?

Several events over the past few weeks make me think that we may have reached the tipping point in a long-rumored disruption in the practice of law.  Like the taxi cab driver watching his airport business flock to Uber and Lyft, lawyers may soon be wondering what happened, and how it happened so fast.

First came the announcement a couple of weeks ago, by AIG – probably the country’s largest insurance carrier – that it has spun off a standalone business that will offer outside corporations advise on how to make legal operations more efficient.

That, in and of itself, is not particularly noteworthy. However, noteworthy is that the business, the Legal Operations Company, will use big data from AIG to help clients determine what to pay lawyers and how to find legal work that is done more efficiently.  In other words, Legal Operations can help clients decide what to pay their lawyers (and what work typically costs) and who to hire based on a mountain of data, instead of reputation and word of mouth. And once a client hires its lawyers, it can again turn to Legal Operations and big data to determine how long it should take the lawyers to do a task and whether the work is being done efficiently.

Being compared to a large data set for pricing and hiring decisions is something that corporate clients and their lawyers have not faced thus far and it could result in fundamental change. Combined with the technology audits marketed by Casey Flaherty, it could put lawyers and their billing practices under more scrutiny than ever.

Aaron Katzel, AIG’s global head of legal operations, explained “The legal services marketplace … hasn’t been terribly good about delivering information about what the right costs for services are and the right value is for the services that are being delivered.” (See Corporate Counsel: AIG Announces It’s Creating a Legal Ops Consultancy.)

According to Legal Operations, during the past three and a half years, 80 professionals staffed in its in-house legal operations team compiled a robust database that can create benchmarks for how to staff cases and deals, and how much money companies should pay their lawyers.

Katzel says that this is “analogous to the situation that we are in already as manager of AIG’s legal spend, we collect a lot of data on market trends, so we can get an understanding across various industries across various clients about what the median cost is to say, litigate a primary causality case in a particular jurisdiction in the US – and that kind of market data across multiple clients in our network on an anonymized aggregate basis ultimately is meaningful for clients.” (See Bloomberg BNA: “AIG to Launch Data-Drive Legal Ops Business in 2016.”)

Second, artificial intelligence is making an inevitable advance into the law practice.  A recent article in ArsTechnica predicts that AI programs similar to IBM’s “Watson” will ultimate devastate the ranks of associates and paralegals. Indeed, 35% of law firm leaders believe AI will replace associates within 10 years. And 47% think AI will replace paralegals. Even if this is only half right, the disruption will be enormous. Not to mention what it may do to the ability and opportunity of young lawyers to acquire the knowledge and experience necessary to become quality older lawyers. The fact that a firm like Dentons is working on its own AI robot, Ross, ought to tell us all something. When combined with the use of big data and armed with an expanded information base, clients will insist that the savings be passed along.

Already, traditional law firms and lawyers are railing at these developments, sure that they will be able to curb Legal Operations and AI. It all sounds much like the arguments advanced to combat the use of third party billing entities a few years ago. Yet the argument that there is something wrong about using technology and standardized practices to lower legal costs falls on faint ears among clients. Like the third party billers, Legal Operations (and similar entities) will probably be mainstream in short order.

One group that will likely embrace much of this is the new virtual and less traditional law firms that have sprung up. The ability of virtual law firms to do some work as good as, and certainly more efficiently than big law is well documented by now. Indeed, new law is now siphoning off big law talent to do just that, aided in part by the promise of a better and perhaps more sane lifestyle. (Harvard Business Review: Law Firms’ Grueling Hours Are Turning Defectors Into Competitors)

It is perhaps the new law firms that will be able to more nimbly react to the use of big data and quickly  adapt to the changing market. For an excellent analysis see Disruptive Innovation – New Models of Legal Practice by UC Hastings College of the Law.

And finally, a new book by Richard Susskind once again pictures and predicts a future for lawyers and law firms that is different in some fundamental ways. Susskind, the leading analyst and visionary around how law and legal services are changing and will change with technology, and his son Daniel, have co-authored The Future of the Professions. (See reviews and summaries of the book in The Legal Reformer and in the ABA Journal.) 

In the book, Susskind opines that the traditional legal relationship between clients and lawyers, which he calls the “Grand Bargain,” has broken down. The Susskinds describe the Grand Bargain as the relationship between lawyers and society, in which lawyers enjoyed certain legal protections. Chief among these protections was the ability to self regulate, which in turn enabled lawyers to define the nature of service they would offer and the credentials needed to offer it. This self-regulation ability also allowed lawyers to enjoy certain prestige and income. In return, lawyers promised to maintain their expertise and put the interests of their clients ahead of their own.  This Grand Bargain has broken down, say the Susskinds, because lawyers have been slow to understand or accept the fact that the means needed to deliver services is now a necessary component of expertise.

And, due to a variety of factors, lawyers are now widely perceived to be maximizing their own interests (i.e. income) at the expense of their clients.  The Susskinds believe that  professionals in general, and lawyers in particular, are beginning to see clients armed with more and more information, allowing them to make more intelligent decisions about legal service and spend. This has already happened in less regulated fields, like journalism, and is starting to happen more often in regulated businesses, like taxi services – where a heavily-demanded new service pushes regulatory barriers out of the way.

Similar to the breakdown of the regulatory framework for taxi service in the face of popular ridesharing, the protection of the bar through self-regulation may be in decline. The power and clout of in-house counsel, who are often also members of the bar, are on the rise and their self-interest may force change.  Indeed, the 2015 Altman Weil Chief Legal Officer Survey reveals a scary insight: Altman asked chief in-house legal officers, on a scale of 1-10, how serious did they believed law firms were about changing their service delivery model.  The answer: 3! To be fair, in-house counsel also indicated that on a scale of 1-10, they only ranked a “6” for the amount of pressure they put on outside firms to do the same. This may merely reflect a lack of tools for in-house counsel to apply this pressure – which is where firms like Legal Operations may come in. Clearly, in-house counsel are not happy.

According to the Susskinds, we also see a trend toward the rise of the empowered client, capable of judging the nature and quality of professional service, coupled with the general reluctance of professionals to embrace technologies that would enable expertise to scale:  “The end of the professional era is characterized by … the move from bespoke service; the bypassing of traditional gatekeepers; a shift from reactive to proactive approach to professional work; and the more-for-less challenge.”

As one of my clients used to say “So, what’s the ‘so what’ of all this?”  Where will all this data, technology and information leave lawyers?

Susskind would likely tell you that lawyers who can offer a specific expertise and – to coin an overused saying – “value added” service, will always be in demand. Likewise, lawyers in small towns and cities will always be needed. Due to the size of the venue in which they practice, they possess the in-depth personal knowledge of everything from the judiciary, jury pool and other lawyers, to local politics and how to get things done. It’s hard to replace that personal touch and knowledge.

Very large law firms that can maintain some of the same presence in bigger cities, but also can provide expertise on even the most detailed practice areas, will always be with us. Similarly, boutique firms with specialized abilities and knowledge have a role. And finally, the firms that can employ technology to do commodity work, and perhaps more importantly, can figure out how to successfully turn what is considered non-commodity work into commodity work, will gain. The most threatened, though, are firms that have depended on leverage, but no longer can offer either the specialized knowledge of people or subject matter, and who can’t offer the commodity work at competitive prices. These firms will no doubt either change or lose the prestige and income they once enjoyed. (For an interesting take on this from “big law” see the recent comments of Richard Rosenbaum, CEO of Greenberg Trauig: So to use the old business parable “Who Moved My Cheese,” once again the firm of Sniff and Scurry will prevail, while the Hem and Haw firm without change will not. So maybe not that much has really changed after all.


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