‘They’re called IPOs, not LPOs!” The gray-haired professor looked at me disapprovingly. How could I not know that?! Two years ago at a conference, academics from different law schools around the country discussed undergraduate legal education. The scholars debated the doctrine of law, the philosophy of law, and other theoretical concepts as essential if such a degree should be granted. “How about also teaching them about the new realities of the legal market, the commoditization of legal services and LPOs?” I asked. Well, the rest you know.
In today’s highly competitive legal market, it is imperative to bring more to the table than just excellent lawyering skills: an understanding of the business world and law firms as businesses. Clients are demanding it: The Association of Corporate Counsel’s (ACC) Value Challenge has been urging law firms to reconnect the value and the cost of legal services since its start in 2007. The initiative is based on the concept that “law departments can use management practices that enhance the value of legal service spending; and that law firms can reduce their costs to corporate clients and still maintain strong profitability. The ACC Value Challenge promotes the adoption of management practices that allow all participants to achieve their key objectives.”
Management practices? Traditionally, law students have graduated into the real world with little or no exposure to finance, economics, project and knowledge management, marketing and business development, or leading people: how businesses are actually run. And that’s a terrible thing to do to them. “Given that AmLaw 200 firms are multi-hundred-million dollar per year enterprises, this naïveté can be dangerous to one’s career,” says legal industry commentator, Bruce MacEwen of Adam Smith Esq., LLC.
After all, the most solid foundation for figuring out what partners really want from you is to understand what you can do for them; they’re the owners and they take home the profits. If you don’t understand the connection between that and what you do as a lawyer, I wish you luck.
Well, we don’t want to base our future on luck, do we? Where’s the wisdom in that? Management guru Tom Peters, author of In Search of Excellence, pointed out years ago that “excellent firms don’t believe in excellence—only in constant improvement and constant change.” I have often been told that, in the legal space, change is glacial. I don’t agree. In the last 10 years, so many things have happened, and entirely new competitors have emerged. The three leading legal process outsourcing companies (LPOs) may still not scare traditional law firms, but their market share has grown significantly at a time when most law firms felt the pain of recession and had to adjust their expectations of growth and profitability. The market size of the LPO business is hard to estimate, but industry sources believe it to be worth between $500 million and $900 million in revenue. Bullish forecasts guesstimate that the industry will surpass $2 billion in 2012 and reach $4 billion in 2015. And the LPOs’ client lists significantly overlap with those of some leading law firms. Just for reference: In 1998, CPA Global was the only LPO already to exist, Integreon was founded that year, and Pangea3 came into being in 2005.
Again not a likely competitor for top global law firms, LegalZoom, founded in 2001, is gnawing away business from small law firms. A Forbes article warned that, “[j]ust as Craigslist decimated the newspaper industry by taking away its low-end but profitable classified-ad business, LegalZoom targets the high-volume, low-cost business of providing basic consumer and business documents.”1 And more recently, Rocket Lawyer was launched by none other than Google.
Traditional lawyers may not like it, but venture capitalists are pouring money into one of the last industries to resist commoditization on the Web. Google Ventures today announced it is part of a group that infused $18.5 million into Rocket Lawyer, which bills itself as the “fastest growing online legal service.”2
No, traditional lawyers will definitely not like it: For $9.99 to $39.95 a month, you can have your documents reviewed by a real lawyer and even get legal advice at no additional cost from Google’s Rocket Lawyer.
Meanwhile, in the UK, private equity firm Palamon Capital Partners bought a majority stake in Quality Solicitors, a network of what are called “High Street” law firms, i.e., consumer law firms. The investment is thought to be upwards of £70 million or $111 million. It was the first outside investment after the Legal Services Act liberalization in October 2011. The Legal Services Act allows UK law firms to finance externally and even to float. With the help of Palamon’s investment, Quality Solicitors wants to become a household name and improve its operations. A partner at the private equity firm said that Quality Solicitors represents an unparalleled opportunity to gain market share in the legal industry and create a successful legal franchise chain. The private equity firm has done this before with Integrated Dental Holdings, the UK’s largest dental chain, and with Towry, the UK’s biggest independent group of financial services advisors. Their choice of chairman for Quality Solicitors, the former chief executive of the flower delivery network Interflora, speaks volumes. Meanwhile, other UK law firms are planning on expanding their business with the help of external capital as well.
But back to the United States: Even if non-lawyers are not yet allowed to invest in law firms, there’s enough change. Procurement in many corporations is heavily involved in the purchasing of legal services. More and more companies are taking a more structured and rigorous approach to selecting firms and ensuring that the relationship continues to deliver expected outcomes.
This shift is particularly seen at the initial instruction phase, when companies bring in procurement professionals to help evaluate providers and negotiate fee structures. In-house lawyers who once had free rein to engage, select and pay outside counsel report to executives, who are not lawyers and who now insist on predictability as to legal expenses. They bring in “new sheriffs,” warns PricewaterhouseCoopers’ Howard Kravitz in an article in the March/April issue of Strategies Magazine, the journal of the Legal Marketing Association (the issue’s focus is legal services procurement). The intelligent use of purchasing has already helped companies rein in rising legal fees by separating legal services into commoditized segments, including paralegal and research needs, and creating sourcing strategies for each individual segment. Rather than emphasizing the firm’s quality legal services (this is assumed), and the relationship with the GC, firms need to get their own metrics right, benchmark themselves against industry-best and develop robust pricing models and business practices to support them. That’s what counts. The new litmus test is: “Does it make good business sense to work with you (your firm)?”
The role of procurement and sourcing managers is not confined to the containment of costs. Top procurement professionals place a special emphasis on aligning their sourcing efforts with strategic corporate goals. They aim to work with functional leaders—including GCs—to improve performance and focus on business value as well as cost. Just in case some might be hoping, it is unlikely that procurement or supply management, as it is now often referred to in corporations, will lose its role when the economy finally picks up again. After sourcing raw materials, goods and services for their companies, corporate purchasing departments turned their attention to the buying of professional services: engineering and architectural services in the late 1980s, marketing, public relations and advertising services in the mid- to late-1990s, accounting and tax services in the mid-2000s, and now legal services.
Learn the Business
No matter how we slice it, law school graduates today face a very complex and challenging market. To have a chance at success, these future lawyers need the tools to enable them, in time, to run law firms as businesses. Law schools have been criticized for not teaching lawyers practical lawyering skills. So let’s equip them with the right tools. I started teaching the 2-credit electives “Law Firm as a Business” and “Law Firm Marketing” at Fordham Law School in spring 2010. The reaction I typically get to the concept of management education for lawyers is very positive. I hear variations of “There is a crying need for it.” “I wish I could have taken your class.” And “I’m surprised that no one has come up with this idea. Makes so much sense.”
Yes, it makes so much sense. Some law schools, including Harvard, Fordham, Georgetown, Indiana, Hofstra, Pace, Temple, and George Washington University (GWU) offer courses on law firm/practice management within their JD programs. GWU’s College of Professional Studies offers a master’s degree in law practice management, and the University of Denver’s Sturm College of Law offers an MS in legal administration. More and more law firms train their lawyers in practice management or project management skills. Milbank even sends entire classes of its associates to Harvard. This is very laudable, but I wish the majority of lawyers wouldn’t graduate, practice, and become partners without having had any type of formal management education (and understanding).
The challenge is that lawyers have traditionally not thought management is particularly important. And it’s not always easy to convince them they should learn something new. But, we don’t know what we don’t know. A friend of mine said it’s “like the 12 step program: You have to admit that you have a problem.” And who wants to admit that? What’s more, even if one decides to give management training a go, there’s the time commitment. If you have to bill, bill, bill, when would you have the “luxury” to take a moment and take an MBA-type class?
It’s about showing people what’s in it for them. Build “transition” courses that help them do their jobs better (just because someone is good at client work doesn’t mean they have the necessary management skills to qualify them to lead a team). For example, senior associates on the verge of becoming (junior) partners need to focus on project and knowledge management, marketing and business development. Partners who are to be promoted to head a practice or regional office benefit from more project management in addition to leadership courses. Second- and third-year associates? Introductory courses on business and finance fundamentals, project management. And so on.3 At some point in their careers, lawyers should have touched all areas of managerial challenges and approaches necessary for success, including finance and law firm economics, marketing and business development, knowledge management and project management, leading and developing people.
Katie Best, director of the MBA program at BPP, a private professional education institution in the UK, says that the “differentiating factor for individuals and firms won’t be their ability to do the law, but their ability to provide business advice in a legal context.”4 UK firm Simmons & Simmons pays for its future trainee solicitors to attend the BPP MBA program immediately after graduating from law school, and before joining the firm. Most of their time in the course is spent looking outwards to the firm’s clients’ business. This is said to create a more business-focused approach to clients’ issues—starting from the business issue itself and working toward the legal solution rather than approaching the issue from an academic legal perspective, as if it were a law school problem.
As for the format of management training generally, people typically prefer interactive, practical, hands-on team workshops with breakout groups rather than lectures. In my experience, 15 to 20 participants are ideal. A mix of case studies, exercises, and best practices with lots of practical take-aways is most useful. I have seen great results by organizing courses composed of academics, successful partners and law firm managers as well as experts from other professional services. Great presenters are an absolute must: To avoid lawyers retreating to their BlackBerry, “edu-tainers” must do their magic and dazzle them with management insight.
Can this be taught online? Yes, but there seems to be a preference for getting everyone together, as it provides networking opportunities, interaction, and learning from one another. However, the Internet should be integrated to supplement courses, provide online testing perhaps, recordings for later viewing and material for self-study. Depending on how regionally dispersed a firm’s lawyers are, it may be very practical to have week-long management boot-camp courses. Otherwise, a good length is two to three days, such as on a Friday and Saturday.
How to make it all happen and overcome the challenges? The firm leadership must make clear that management training is a priority. Awareness “campaigns” within the firm, perhaps with statements from well-respected people in the industry or clients, can also convince lawyers to leave their legal comfort zones. “Transition” courses are a good idea as they come at a time when a lawyer is likely to understand that she or he needs new skills. Lastly, I would start with a pilot group that is willing and interested, and make participation a badge of honor or reward rather than a punishment. After the completion of the course, you should have a core group of evangelists who not only think in new ways and apply their fresh management knowledge, but who also encourage others to participate as well. You also won’t have to argue about what’s more important, LPOs or IPOs.
Silvia Hodges, the director of research services of TyMetrix Legal Analytics and an adjunct professor of law firm marketing and management at Fordham University School of Law, can be reached at email@example.com.
3. How about courses for senior partners, a few years before retirement: “Leaving a Legacy: How to Transition Your Practice”?