Thursday Jun 18, 2009

Change

I shake my head whenever I read articles like this that suggest that the legal services profession will continue unchanged. It feels like so much "whistling past the graveyard." The reality is that we are in the early stages of a seismic shift in the traditional cost and delivery model for legal services. I see it every day in my interactions with the law firms that support us and in my discussions with peers at other companies. This change is the result of three major factors: the current economic downturn, the rise of alternative legal service providers and the lifestyle choices of the newest members of our profession.

The global recession is causing all commercial enterprises to scrutinize their cost structures. As part of this, in-house legal departments are expecting their legal service providers to provide similar efficiencies. Recently, we asked one of our partners, Howrey, to represent us in some corporate litigation. As part of this engagement, we had an initial meeting with two partners from the firm, Robert Gooding and David Lisi, to discuss case strategy and also the anticipated cost of defense. To my surprise, Bob and his partner proactively offered a variety of cost structures (including flat fee and quarterly fee caps) as alternatives to the billable hour. They were also happy to work with the legal staffing vendor we use for litigation support and offered other suggestions for lowering our litigation costs. I can tell you that this is a conversation that would never have occurred with any firm five years ago. At least, not without significant prodding on our part.

The availability of alternative legal service providers in lower cost geographies is also increasing competition in the legal services market. In part, this is due to the almost frictionless ability to transfer legal work around the world via the Internet. The result is that legal service providers in lower cost locations are able to use price to more effectively compete for work. Over the last few years, we've seen this in the way important, but more routine and repeatable work, is being handled in lower cost areas in the U.S. and other countries. As professional licensing regimes are harmonized, this trend will continue and, as these lower cost providers gain greater experience and training, they will move "up the stack" providing increasingly more valuable and higher margin services.

The career perspective of the newest generation of attorneys is an additional factor in driving these changes. They desire a different lifestyle than what was offered in the past. I know this from first hand experience. As I'm writing this, I'm sitting in a conference room with a number of our law school summer interns. They work differently than I did when I was in law school - collaboratively, in communal spaces, streaming music, while interacting with peers via Twitter, Facebook and other social networking sites. To many of them, flexibility, mobility, a collaborative environment and interesting work are paramount - and not always what law firms can currently offer.

Interestingly, I had lunch yesterday with the managing partner of one of the larger firms that support our company. (I'd disclose the name, but I feel that much of what we discussed was in confidence.) It's clear that he understands where our profession is heading. His firm is automating routine work like the creation of incorporation documents; increasing it's use of cost accountants to better understand his firm's cost structure enabling it to more effectively price work; and encouraging clients to use flat fee and other alternative billing models. His firm is also actively exploring ways in which they can better meet the career desires of their newest generation of attorneys. Some of the things that are being considered include abandonment of the traditional partnership track structure (based in part on graduating class year); training partners to be more effective managers; and creating a career path for those attorneys who are more interested in lifestyle balance than a corner office. At the end of our discussion, he expressed certainty about the changes to come, but with some wistfulness for the past.

Change is always difficult. But, all of us in the legal profession - whether in-house or firm - need to embrace it. For as Benjamin Franklin once said: "When you're finished changing, you're finished.

For those of you that are interested in being part of the conversation, here's a good place to begin.

Monday Aug 11, 2008

Finding Value

Years ago, I worked for an established New York based law firm. I was assigned to support one of our major clients, a large international pharmaceutical company. As a junior associate I grappled with billing - trying to juggle the minimal value of my limited legal experience with the pressure of meeting the firm's billable hour requirements. I shared this with the senior partner on the account and, to my surprise, he told me to bill for all of my time and that he would ensure that the firm received "compensation commensurate with the value the firm provided to the client".

At the time, I wasn't confident enough to ask how this was accomplished. But I later found out that this partner had a long standing relationship with the client's CEO. At the end of each year, the two of them would meet over a nice dinner and bottle of wine and review the work that the firm had done the previous year. Among other things, they would discuss the amount and type of legal support the firm had provided and the value of that work to the client. At the end of the meal, they would agree on an annual fee for the following year - usually memorialized on a napkin. Some years the fee increased; in others, it decreased.

I was thinking of this story while attending a meeting with lawyers from a number of San Francisco Bay Area companies and law firms. Under the aegis of the ACC we were together to discuss the devolution of legal services from the halcyon days described above to the present where law firms optimize for profits per partner while in-house legal departments focus on efficiency and value. It was a lively discussion and, although there wasn't a clear solution, some ideas resonated with me.

1. Legal Education - Law schools (especially in the U.S.) remain primarily focused on theory, rather than practice. As a result, a significant expense for law firms is attributable to providing practical training to recent law school graduates. In turn, this expense is passed on to clients in the form of higher hourly fees. Our legal education system needs to provide better practical training. In this respect it should mirror the residency requirements of medical schools or legal programs in other countries. For example, in Germany, a practice residency is already incorporated in the law school curriculum. In addition, law schools need to recognize that the "legal profession" is also a business for providing legal services. To be successful, lawyers need to be trained in how to manage a competitive business enterprise. Interestingly, future members of our profession already understand this and are focusing on the issue.

2. Legal Media - As a public company, Sun provides a very transparent view into all aspects of our business operations. This transparency drives increased competition in the marketplace for our products and services. Obviously, law firms aren't required to provide this type of information. However, the limited information that is available focuses on the wrong metrics. Legal media need to shift the focus from metrics like profits per partner to those metrics that are valued by clients. When legal periodicals begin to report firm operating expenses, average cost per billable hour and similar metrics, the legal world will change very quickly - and for the better. Law firms understandably dislike RFPs. In-house legal departments feel the same. Unfortunately, there is no other mechanism for clients (i.e. customers) to ensure that they are getting cost-effective value.

3. Law Firms - Law firms need to better understand that they are both licensed professionals and also employees of a business enterprise in an increasingly competitive (and global) market. This means they need to understand every component of their operating expense and business model. What is the cost of attorney turnover in the firm? What are its core v. non-core technical strengths? Can the firm manage sub-contractors (i.e. other legal service providers) to provide more cost effective services to clients in non-core areas? Does the firm fully understand its customers and does it tailor its services to the customer's specific needs? (In this regard, I note that I have never had a firm propose a non-standard billing relationship for a specific matter. Instead, I've always had to request it.)

4. In-House Legal Departments - We need stop complaining and be part of the solution. This includes not just considering, but engaging firms that provide alternatives to the traditional legal services model. (Some examples - Axiom, Paragon Legal and the recently announced Virtual Law Partners). We also need to be more willing to retain small to mid-sized firms and firms in other geographical regions. Above all else, we need to more actively share information about attorneys and firms that deliver the value that we need as consumers of legal services.

If you want to be part of the dialog, contact the ACC for more details.

Sunday May 04, 2008

Second Life

The handsome guy with the five o'clock shadow seated on the right is my avatar. Someone in Sun's marketing group created it. And, let me stop right here and give them a big "thanks" for not adding a dorsal shark fin, forked tail or similar appendages. Given the sometimes less than positive public esteem for my profession, someone could have had a lot of fun with this particular assignment.

The reason for the avatar was an internal Sun employee conference held last week in Second Life. The meeting included a number of Sun executives interviewed throughout the day by Chris Mellissinos in our Sun virtual campus. Sun employees were able to attend either in Second Life or to watch and listen to the meeting in progress through a browser window on their desktop


During my session, I spoke a bit about the interesting legal issues raised by some social networking technologies. But most of the conversation was about how these technologies can be a valuable tool for the legal profession. For example, some law schools are already using virtual classrooms for instruction. My team has also been discussing whether this would be a good way to deliver compliance and other training to employees. No doubt there will plenty of future opportunity to use sites like Second Life to enable information sharing within firms, in-house legal departments and between attorneys and clients. But, to be candid, at this stage the virtual experience is not yet compelling. Despite my good looking avatar-self, the overall visual effect is still primitive and coarse and the UI is a barrier. Overall, the experience feels more like participating in a conference call while watching a mid-1960's cartoon. But one only has to imagine the impact when the bandwidth and rendering capabilities deliver the visual experience found in today's gaming and movie releases. At that point, people will sense a greater integration between their virtual and "real" identities making these tools more effective.

To some extent this is similar to evolution of the Internet. I still remember using my Mosiac browser at Sun to connect for the first time. I waited for what seemed an interminably long time to download a photograph of a painting in the Louvre. As I watched each row of pixels complete, I thought to myself that at some point this is going to touch every aspect of our lives. And, a little more than a decade later - it does.

Sunday Apr 13, 2008

Let me try that answer again.

Last month, I was invited to speak to the USF Law School Intellectual Property and Cyberlaw Association. A nice group of students all with a shared interest in intellectual property law. I'm not a big fan of presentations, so I spent a few minutes talking about Sun and then opened it up for questions. And, there were many ranging from "how do you monetize products that you give away" to "what is the Peer to Patent project" to "what's your job like"? It was a very fun session.

But as I drove back to the office, I reflected on one particular question and wished that I had handled it differently. It was asked by a 3L (third year law student graduating this year) who wanted to know whether I thought the current macro-economic conditions were going to impact employment opportunities for this year's graduates. My response was that I've seen several of these downturns in my career and that they are cyclical. I also pointed out that the current economic conditions will likely impact every industry - except perhaps the energy sector. All in all, not a very comforting response on my part.

Here's what I should have added.

Despite the present economic environment, I can't think of a better area for future legal career opportunities than intellectual property law. Consider for a moment a few of the recent and more interesting IP cases like Viacom v. Google, Eros v. John Doe, Fair Housing Council of San Fernando Valley v. Roomates.com and A.V. v. iParadigms. Then realize that the technologies and business models underlying each dispute haven't existed much longer than you have been in law school. The pace of innovation around us is accelerating - not declining. Each year the universities of the world graduate even more engineering and computer science students with the facility to manipulate 1s and 0s in inventive ways. Every day there are new businesses emerging based on the digital economy that will touch every aspect of our lives whether it be in health care, entertainment, politics or consumerism.

And, there's something else to consider. What I have described here are U.S. examples. Current estimates are that only about 20% of the world's population is connected to the internet. Without doubt, when the rest of the world is fully able to participate in the digital community, even more innovation will result.

So, Mr. 3L. Take a deep breath. Spend the next few months preparing for finals and the Bar Exam. And, take comfort in the fact that even during this short period the intellectual property landscape will have changed - creating opportunities that you haven't imagined.

Monday Feb 25, 2008

Life is different in-house

I recently had a cup of coffee with an attorney who just joined our organization after spending a few years with a local law firm. We had a great conversation and covered a number of topics, but we kept coming back to comparing the differences between what it takes to be a successful lawyer in a law firm versus as part of an in-house legal department. As you might guess, the differences are vast, but it got me thinking about my first blog in which I referenced "The Reebok Rules". Written by that company's then GC, Jack Douglass, these rules provided guidance on how to be successful as an in-house attorney. Although they are still instructive fifteen years later, I think the playing field has changed. So here are my thoughts on today's version of the rules. I'm interested in hearing whether these resonate with other in-house attorneys.

1. You are a business person. Your business is providing legal services to your company. Constantly focus on how to deliver high quality legal services in the most efficient manner possible. Learn from your clients. Electronic automation, outsourcing, wikis and dynamic bidding events are all examples of business tools and practices that are increasingly being used in the legal environment.

2. Learn the style of communication most effective for your client. The smartest attorney is not always the most valuable. You can be a brilliant technical lawyer and fail spectacularly if you don't have the ability to transfer your knowledge and to influence your clients and colleagues. When you are in a law firm, because they are paying for your time, the client is usually motivated to listen. But when you are in-house counsel, the direct billing relationship is absent. This can make it a challenge for your advice to be heard. If your client is the CTO of a Web 2.0 start-up who uses only a smart phone, rendering your legal opinion in the form of a multi-page legal memorandum is not likely to be effective.

3. To be effective in-house, you need to collaborate and work as part of a team. Individuals don't scale because we are each limited by the hours in a day - but a team can accomplish amazing things. Among the biggest trends in the world today are the rise of social networking, wikis and other network-enabled communities. Why? Because the power of shared knowledge and work is very compelling.

4. Always be the calmest person in the room. Too often attorneys inflame a stressful business situation, rather than providing calm and dispassionate counsel. In this regard, a quote from former U.S. President, Woodrow Wilson is one of my favorites: "One cool judgment is worth a thousand hasty counsels. The thing to be supplied is light, not heat."

5. Use humor and humility. Let's face it, our profession still has a reputation for being dull and arrogant. This creates barriers when you work in-house because many of your clients will start with this frame of reference when they first meet you. The use of humor and humility as tools to remove these obstacles can be very productive in creating a strong attorney-client relationship. So, don't be afraid to show a sense of humor and don't act as if you know every answer - instead, ask questions. You will know that you have achieved success when your client says: "You don't act like an attorney".

6. Believe or leave. In every company's history there are low points. During those difficult periods, it is easy to get disillusioned and cynical. This negativity infects everyone you work with and will ultimately damage your reputation. If you aren't passionate about your company and what you do, you will never be successful. And, note that I am not saying "agree" or leave. Every company has areas that need improvement. It takes passion to identify them and drive positive change.

7. A manager's job is to provide direction and training and remove obstacles - that's it. Too many managers (especially new ones) make the mistake of trying to manage every detail of an employee's work. This is frequently the case with attorneys because, unlike our business partners, we rarely have formal management training. Also, many of us who previously worked in law firms mistakenly equate "management" with the micro-scrutiny our work received from law firm partners. (One of the interesting things we found with OpenWorks was that managing remote employees actually creates stronger more effective managers.)

8. Identify the legal services that provide unique value to your department - outsource everything else. In our legal organization, the majority of employees are transactional attorneys preparing and negotiating thousands of diverse and complex agreements around the world. Most of the dynamic information in this area (processes, technologies and business models) derives from within our company making it more valuable to rely on in-house expertise. That's why the largest portion of our organization practices this type of work. On the other hand, in other areas, for example, corporate reporting where most of the changing knowledge is external (e.g. new SEC regulations), we have a relatively small team that leverages outside counsel for support.

9. Understand how you are adding value to your department - your department to your company - your company to the world. This requires an in-depth knowledge of your company's business, competitors and markets. Sometimes this linkage is not as readily visible in the legal department as it may be in other company functions, but being able to articulate it is a great motivator and also useful in helping management understand your value proposition. Each year, I keep a informal list titled "Why you pay us". It reflects the annual accomplishments of our organization. It's a good device for helping me explain to others the value of the in-house legal team.

10. Sometimes, you do have to say "no". Fifteen years ago, most successful in-house attorneys expressed that you never did so without providing an alternative. Today, however, lawyers are increasingly being held to a higher standard and viewed by the government as "corporate gatekeepers". In this environment, there are occasions when there is only one response - "no". Although your client may not be happy with the answer, if you have done your job effectively and established credibility, even this negative response will be valued and respected.

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