How Law Firms who Pivot will continue to Profit

What do lawyers do? They counsel, they advocate. They make things happen. Samuel Williston said that a lawyer, above everything else, is a man who brings things to pass, a man who helps to make things constructively happen.

But how to do this, profitably, in an era of upheaval and disruption? With a judicious integration of emerging technology into operations. Historically, technology has been the tool to drive effectiveness in every industry.

Lawyers have been lamenting changes to their profession since the Civil War, likely long before. Fifty years ago James Willard Hurst noted, in his analysis of 200 years of law in America, that lawyers had “become more matter-of-fact, more cost-conscious, and less willing to resort to litigation for anything except a calculated gain worth the price” and that “Time has put the lawyer under higher tensions.”

This couldn’t be truer today.

It’s been ten years since the global recession recast the legal business. The profession continues to evolve. Societal changes continue to shift the demand for legal services (e.g., decriminalization of marijuana, improved motor vehicle safety, decreased marriage rates.) The firms that embrace change and embrace emerging technologies will prosper as those that cling to old ways, or rely on rate increases to remain profitable, will falter.

Lawyers Must Extract More Profit From Existing Business

As more firms compete for less business, and rates remain stagnant, lawyers must extract more profit from their existing business. But how? One immediate fix is to leverage existing and emerging technological solutions. Yet some lawyers continue to resist change. The ABA TECHREPORT 2016 highlighted the downside of this reluctance: “Many attorneys, especially those more experienced, find the field of legal technology to be overwhelming. A common response has been to maintain status quo operations, avoiding and ignoring innovation. Unfortunately, the bar has determined that this is not an acceptable response.” Due to changes in the ethics code, Technological incompetence is not merely a disadvantage, it may be an actual ethical violation.

Markets are shifting faster than lawyers can keep up or form strategic responses. Some legal services are becoming commodified. Segmentation is taking place between client assignments where only experienced lawyers can add value, and the routine, fungible tasks that can be performed by associates, paraprofessionals, and non-lawyers. Lawyers need to limit their own focus to high-value, lucrative work and rethink the rest. With a careful, strategic restructure lawyers can hand off these commodified tasks, or even turn them into new profit centers.

The 2017 Report on the State of the Legal Market calls for a broad reimagining of legal services: “one that includes paraprofessionals, technologists, information specialists, process managers, and others—in addition to lawyers—as part of an integrated system,” noting that the healthcare model has similarly evolved, “also driven by the dual objectives of improving outcomes and quality of service while reducing costs.”

In “5 Mistakes That End Law Firms” Randy Evans and Elizabeth Whitney explore commonalities in firms that fail. Particularly insidious is the temptation to try to fix revenue deficits with expense cutting, a step that leads attorneys to perform administrative tasks for which they are overqualified. Clients notice. “They notice the intangibles first as attorneys’ attentions are diverted from meaty legal services to administrative tasks. Unfortunately, many react to less service with fewer assignments. But fewer assignments means less revenue. When that happens, the spiral has begun.”

How to head off this spiral? With a judicious analysis of what tasks can profitably be handled by others.  Followed by a revamping of operations to ensure each task is handled by the appropriate professional.

Firms Unduly Conservative in Applying New Technologies

Law firms need to extract more profit from the existing business in order to remain competitive. Yet firms have been conservative in applying new technology.

From a recruitment standpoint, technology is essential. Today’s law school graduates were raised on tech: they thrive in a 24/7 mobile-accessed working environment. They expect prospective employers to leverage all available the tech tools at hand, and to embrace those not yet developed as they emerge.

It’s not just young lawyers who expect lawyers to be tech-savvy. Clients have adopted tech at a far faster rate than law firms.  Lawyers are by nature conservative. The loss of control inherent in outsourcing is viscerally uncomfortable. As professionals ultimately responsible to clients for the quality their work, this conservatism is understandable.   But lawyers need to catch up to our clients, or be left behind.

An Effective Solution

One opportunity to increase profitability is in revamping administrative functions. In 2013 The Wall Street Journal deemed legal secretary a dying job. The recession hastened the reduction in support staff that the advent of the word processor and technological revolution had begun. The old world where every lawyer had his or her own secretary has vanished.

Paralegals, unlike legal secretaries, perform specifically delegated substantive legal work for which a lawyer is responsible, per the ABA Model Guidelines for the Utilization of Paralegal Services.

Paralegals are paraprofessionals hired to perform specialized work. But as belt-tightening led firms to reduce administrative staff, some lawyers, pressed for time and short-handed, backslid into using paralegals for tasks formerly performed by legal secretaries whose jobs had been eliminated. This is short-sighted.

A sounder, more cost-effective approach is to assign paralegals the substantive legal work they were trained and hired to handle. Less specialized tasks should be performed by administrative staff. For firms without sufficient administrative capacity, virtual assistants can be an effective solution. In the wake of the recession many law practices remain reluctant to add additional salaried positions. Instead forward-thinking lawyers, from large firms to solo practitioners, have retained virtual assistants, paid by the hour, on an ad hoc basis to plug this gap.

The Shrinking Office

Law firms require less office space to do the same amount of business. Lawyers are no longer tethered to their desks. The average square foot per attorney continues to fall, partly as a result of intentional cost-cutting but also as a reflection of technologically driven changes in business, mobile access, cloud storage of records, and availability of virtual or on-demand assistants rather than on site salaried administrators.

Cloud-based tools save time for attorneys with easier access to documents and information is accessible from anywhere. The Pennsylvania Bar Association has approved these tools, and issued ethical guidelines for the use of Cloud Computing/Software as a service. In Formal Opinion 2011-200 the Committee on Legal Ethics and Professional Responsibility recognized that “[M]any law firms view these technological advances as an opportunity to reduce costs, improve efficiency and provide better client service.” Lawyers may use cloud services as long as they take take appropriate measures to protect confidentiality. The opinion lists 15 specific guidelines.

Most lawyers leave law school trained to provide legal services for clients. But running a law firm requires a different skill set. Firms need both to prosper. Per Gene T. Barton, Jr. of Pepper Hamilton LLP, clients notice responsiveness. “Most law firms have more than enough experience to deliver high quality legal work. Although I wouldn’t say that legal services have become a commodity, they certainly are trending that way. What clients really notice are service levels. How long did it take to get a return call?”

Survival of the Fittest

One key outcome of the lengthy recession was cost-cutting and expense management. But there’s a point at which such cuts have diminishing returns and ultimately prove counterproductive in terms of deferred capital investment in technology: “With expense growth already at the 2-3 percent level, it will be hard for firms to get much more benefit out of aggressive expense management. Indeed, many firms are now finding that pressure is mounting to ratchet up spending for strategic investments in technology.” —2017 Report on the State of the Legal Market. Prudent investments now will position firms for continued growth and profitability over time.

The market will keep getting more competitive. It’s not the strongest species which survive amid turmoil, but the most adaptive. Which firms are outperforming their peers? Those agile and forward-thinking enough to keep what’s working and adjust those aspects of its practice that are not. Only firms stepping up with technology will survive.

James Willard Hurst said there are only twenty-four hours in the day, and a lawyer is a human being who has to earn a living. Lawyers must gaze starkly at the options before them: evolve their practice to endure and prosper or refuse to adapt and risk becoming Darwin’s endangered species. For Hurst also said of lawyers’ preparedness for the changing world: “So far, our realism has not been realistic enough.”

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