image [cc] Alex Proimos

I saw mentioning of The Wall Street Journal opinion piece by Steve Barker, “In the Age of Google, Librarians Get Shelved,” this weekend, but didn’t actually read it until this morning. I found the opinion piece to be a little bit lazy, and playing up the old fear of “everything is on the Internet,” and that “the public library of the future might be a computer center, staffed by IT professionals and few books or librarians.” I usually just roll my eyes and move on about my daily business, but the fact that the WSJ would run this, and that a number of my colleagues within the legal industry would possibly read it, I thought I would chime in with some feedback.

First and foremost, I want to remind my colleagues that a public librarian plays a very different role from what a law librarian does. I’ll let public librarians defend their own, and I’ll start by stating what I see as the number one role of a law librarian, regardless of if that law librarian is in government, academia, or private legal environment:

Law Librarians manage the risk within the organization they serve, ensuring the organization’s mission is met through the acquisition, management, distribution, and analysis of legal information needed for the organization to perform its mission in a timely manner and at an appropriate cost.

Our job isn’t about pointing people to the nearest bathroom, or locating lost keys. It is about positioning lawyers, educators, judges, administrators, and the public, in the best possible position to fulfill their responsibility within the legal framework they represent. If we do help you find the bathroom or your lost keys, we do so because we tend to be nice people and want to help. Don’t view that as a weakness, view it as a strength in that we feel empathy for your current situation, not that we have nothing better to do.

It’s not about knowing how to do a Google search; it is about knowing how to interpret a Google search and the knowledge to know when that is enough, or it is time to dive deeper into specialized tools vetted, obtained, and managed by the law librarians. It’s not about understanding technology; it is about understanding how technology can be applied to increase the availability of resources and the knowledge rejecting technology when the rewards do not outweigh the risk/costs/effectiveness of that technology.

I’ve always heard that any problem can be solved given the unlimited supply of three things:

  1. Time
  2. People
  3. Money

None of us have unlimited time, people, or resources. That’s why the law librarian is such a valuable resource, in that he or she reduces all three of these things by applying our expertise and experience of managing the risks associated with time, people, and money.

If you think that a law library is about Google and books, or even Westlaw and Lexis, then you truly do not understand what’s really going on. Thinking that just anyone can run a law library because they have technology skills is like thinking anyone can drive a Formula 1 car because they can replace the oil in their car.

Law Librarians manage risk.
Law Librarians save you time.
Law Librarians save you money.
Law Librarians reduce your headcount.

We make sure that you have the resources when you need them, and within the needs and budget of the organization. If you confuse technology for knowledge, you’ve just increased your risk substantially. Be prepared to tap into more time, money, and people.

Over the next month, members of the American Association of Law Libraries will vote on whether to change the name of the organization to the Association for Legal Information.  I will be voting yes, and I encourage all members to take the time to research and think about what the rebranding and renaming initiative means for the association, the profession, and yourself. This is important, and no member should stand on the sidelines and let others cast votes in your absence. The rebranding effort is a huge undertaking by the leadership of the association, and is step one of many in helping the association change to meet the needs of current and future members.
Nearly six years ago, I penned a post called “This Isn’t Your Daddy’s Law Library! – Time for a Law Library Revolution.” In that post, I point out the new and creative ideas and services created by law librarians, and the desire of those who wish to steer the profession back what they believe to be the core function of law librarians in acquiring, storing, cataloging, and distributing legal information. Here is a sample of my thoughts on what happens when the library pendulum shifts toward new and progressive ideas, and the desire for some to move that pendulum back to the center.

Whenever the law library gets progressive and starts promoting new ideas, those ideas get spun off into their own departments and the creative law librarians leave the library field to join these departments. Things like Knowledge Management, Competitive Intelligence, and even some Marketing and IT ideas that were created in the library now exist outside the library. So it seems that the general direction the law firm libraries have taken in the past 15-20 years is to get us back to what we were doing in the 1980’s.

My thoughts back then were focused on the moves by law firms to place library functions under the IT and/or Marketing departments. My thoughts now are that six years have nearly passed and while this is still a conversation within the industry, the next wave of change is already taking place. A new outsourcing movement is occurring in the Northeast where entire law library functions and personnel are not only removed from a Library Department, they are being removed from the law firm completely and now work for a Library Consulting company. We are still arguing about where we exist within the firm, while the leaders of the firm have moved on to deciding if we even belong in the firm at all.

The only thing harder than adjusting to change, is pretending that the change hasn’t already happened. As General Shinseki so eloquently stated, “If you don’t like change, you’re going to like irrelevance even less.” The Law Librarian profession has changed, and is continuing to change. That is not a bad thing, it is just the reality of the profession. It is up to the leaders within our profession to position the association, and prepare its members to lead and direct the changes, rather than react when it is too late.

During this decade, the corporate law firm libraries have vanished, the private law firms have undertaken massive changes in structure, and the government law libraries have transformed themselves into a new function surrounding access to justice. The academic libraries haven’t had the drastic changes in structure, but they are not immune. We saw hints of change at Harvard with John Palfrey’s brief reign, but not nearly what I envision will happen over the next ten years to what the pain of decreased admissions and the burden of student debt brings to the entire law school organizational structure.

Times for law libraries aren’t simply changing — they have already changed, and the next wave of change is already upon us. It’s time that all of us understand that, and stop thinking of ways to move the library pendulum back to center. That pendulum no longer even exists for many of us in the profession.

This brings me to why I am voting “yes” on the initial phase of rebranding AALL by changing the name to the Association for Legal Information. The profession has changed and it is time for the association to lead and prepare its members for the next round of changes, rather than lag behind and react after the fact.

The profession’s core functions are still based on acquiring, storing, cataloging, and distributing legal information. However, those functions will be more of a commodity than an added value. It’s all those other functions that we as librarians have produced over the years that will create the value the profession produces. Information to Knowledge, and Knowledge to Intelligence, and Intelligence to Experience, and Experience to Expertise are the key factors going forward. It starts, but does not end with the information we gather and maintain. The association needs to position itself to lead on developing these value added functions, while continuing to support the core functions.

The Association for Legal Information is where we start with the rebranding of our association and profession. This will be the springboard to help us leap to the next iteration of what being a law librarian and legal information professional means, and the value we bring to the legal industry as a whole. The rebranding is not about leaving law librarians behind. Far from it. It is about augmenting what we do, and bringing new ideas and new experts into the field to use as specialists, and for us to learn from them in return. It is about Law Librarians being the change and leading the way into the future.

“Nine women can’t make a baby in one month.”

That’s good because adding headcount is not nearly as productive as it appears at first glance. Last post, I wrote about Baumol’s cost disease and why labor in stagnant sectors (like law) gets more expensive over time. This post, I’m going to use Brooks’ law as a starting point to discuss the fact that labor gets less productive the more of it you have.

The most cited ‘law’ in technology is Moore’s law. In the popular consciousness, Moore’s law is a stand-in for exponential growth in computing power and attendant drop in the cost of computing resources. There are complementary and related laws that speak to the growth in network utility (Metcalfe’s, Reed’s), connection speeds (Nielsen’s, Butter’s), software (Andy and Bill’s, Wirth’s), storage (Kryder’s), and battery life (Koomey’s, Dennard). In short, silicon-based performance keeps improving. Carbon-based performance (i.e., human beings), not so much. If there really is a race against the machine, one of the sides is standing still.

Those laws govern technology. Other laws (not taught in law school) govern us.* Though it comes out of the world of software development, Brooks’ law is very much concerned with the human element. In his 1975 book, The Mythical Man-Month, the eponymous Fred Brooks explained how adding manpower to a late project makes it later. Adding headcount can have diminishing (even negative) returns because of:

Indivisibility. The quip about the nine women combining to produce a baby in one month gets at the limited divisibility of tasks. While multiple perspectives and fresh eyes might, for example, improve a contract, imagine the chaos of assigning each sentence thereof to a different lawyer. Many complex tasks defy divisibility and delegation. Sometimes, it really is faster and better to do it yourself. (There is a distinction between the division of labor and the division of work)

Ramp-up Time. Even when it is possible to divide a complex task, new people need to be educated before they can contribute. The time spent educating them is a cost. This dynamic is, for example, evident in trial teams who put in inhumane levels of time prepping because they do not have the bandwidth to get other lawyers sufficiently up to speed on the case.

Communications Overhead. Even when tasks are divisible and the time investment is made in properly onboarding new team members, the addition of headcount still results in coordination costs. The person working alone has no need to communicate with anyone (other than the voices in their head). The two-person operation has one communication channel (A-B). The three-person operation has three communication channels (A-B, A-C, B-C). The four-person operation has six communication channels (A-B, A-C, A-D, B-C, B-D). This combinatorial explosion means that communication channels increase at polynomial rate. Some complete graphs and a table might provide more clarity:

While the 50-person department is only 10-times the size of 5-person department, the former has 123-times the communication channels. The attendant challenge of people (not) being able to communicate with each other leads to the development of information silos. The countermeasure to silos is to create a layer of channel intermediaries to communicate on behalf of different groups. Channel intermediaries are also known as managers and frequently derided as “bureaucrats.” ‘Paper pushers’ are one of many diseconomies of scale.

The fundamental task of management is to make people capable of joint performance through common goals, common values, the right structure, and the training and development they need to perform and to respond to change. The more people there are, the harder the task is. The task of management is especially hard when those people have the personality traits common to lawyers — i.e., high-status professionals with an aversion to being managed (autonomy) or working with others (sociability), an extreme degree of focus on the immediate (urgency), and an innate antipathy towards experimentation (resilience) or change (skepticism).

Regardless of personality type, real collaboration is hard. Teamwork is great in theory but entails real costs in practice. Simply adding headcount is not necessarily simple. The positive impact on productivity is neither automatic nor linear.

Indeed, even if adding headcount is a net positive after accounting for hard and soft costs, it is not always the optimal use of finite resources. Opportunity costs must also be considered. At a certain scale, the ROI on increasing the productivity of existing personnel can exceed that of adding new personnel. Two charts I’ve used before (the first from the amazing xkcd) illustrate the returns on productivity improvement at scale:

Putting it in concrete terms, the 25-person law department is better served spending $150,000/year on technology that improves average productivity by 5% than by hiring new headcount at the same budgetary impact.

And that is before taking the ‘laws’ above into account. The additional labor is likely to grow in expense over time (Baumol’s cost disease) and, while total productivity might increase, average productivity is likely to decline with the addition of new headcount (Brooks’ law). Moreover, the $150,000/year in technology spending is likely to buy more productivity as time passes because the technology will get better and cheaper (Moore’s, Kryder’s, etc).

Not so fast!

 The foregoing is not completely wrong. These dynamics merit serious consideration. But while the argument above highlights the barriers to productivity that reduce the gains from adding headcount, it simultaneously assumes that the introduction of technology is frictionless. This immediate, seamless transition to a technologically-enabled workflow calls to mind another ‘law’. Clarke’s third law: Any sufficiently advanced technology is indistinguishable from magic.

 Technology is not magic. While it is a challenge to get humans to truly collaborate, it is also a challenge to get machines to work together. Time, expertise, and money are required to integrate and secure different systems from different time periods built on different platforms for different purposes. Likewise, even after installation and integration, it is a challenge to get people to use the machines properly. It doesn’t matter how powerful the computer is if it is being used like a typewriter with a glowing screen.

Magical thinking about technology rests, in part, on the belief that the the biggest obstacle to silicon-based productivity improvements is finding the budget to purchase the technology. Once purchased, technology will automatically make things better–superior outputs from the same inputs thanks to the deus ex machina. We expect a solar-powered, self-driving car. We get a Toyota Corolla — a perfectly functional vehicle that still requires precise user inputs and maintenance to serve its purpose. 

As I’ve discussed before, the primary prophets of the robot apocalypse are the first ones to dismiss beliefs in silicon pixie dust. The book The Second Machine Age by MIT professors Brynjolfsson and McAfee, like its predecessor, Race Against the Machine, is often cited as one of those triumphalist accounts of machine ascendence that causes “automation anxiety” among the carbon-based workforce. Yet, at the core of the book are the authors’ own studies showing the real, though not insurmountable, barriers to incorporating technology into an enterprise workflow. One study suggested that every dollar invested in computer capital should be the catalyst of up to ten dollars (a 10x investment) in organizational capital–i.e., personnel, training, and process redesign. A related study found that due to the need for complementary investments in people and process, successful investment in enterprise technology typically required five to seven years before realizing the full performance benefits. Again, the successful IT projects often required 5-7 years and a 10x investment in people and process. Many of the failures never get off the ground.

Indeed, as the thrust of their research suggests, these harbingers of human obsolescence are themselves rather focused on the human element of human-machine pairings (consistent with Ryan’s preference for using Augmented Human Intelligence (“AHI”) in place of AI madness). While they note that machines long ago surpassed human beings in activities like chess, the authors emphasize that humans are still winning chess matches against machines. The humans are being augmented by machines (or vice versa). Human-machine teams are superior to humans or machines alone (well, maybe).

Interestingly, the quality of the machines or the humans are not the sole indicators of success. Process (i.e., how the two are integrated) is an important factor. The authors cite approvingly to a passage from Gary Kasparov (humanity’s defeated chess champion):

The teams of human plus machine dominated even the strongest computers. The chess machine Hydra, which is a chess-specific supercomputer like Deep Blue, was no match for a strong human player using a relatively weak laptop. Human strategic guidance combined with the tactical acuity of a computer was overwhelming.

The surprise came at the conclusion of the event. The winner was revealed to be not a grandmaster with a state-of-the-art PC but a pair of amateur American chess players using three computers at the same time. Their skill at manipulating and “coaching” their computers to look very deeply into positions effectively counteracted the superior chess understanding of their grandmaster opponents and the greater computational power of other participants. Weak human + machine + better process was superior to a strong computer alone and, more remarkably, superior to a strong human + machine + inferior process.

Process matters. Process matters in getting humans to collaborate with each other. Process matters in getting humans to collaborate with machines. Process improvement is not organic. Status quo bias is too strong. Just as with hiring new personnel, introducing technology is a genuine management challenge that can go horribly wrong.

I will end this post, the same way I ended last post. There remains a fundamental tension between my views on the obstacles to process/technology improvement and my views on why process/technology improvement is inevitable. In my mind, this tension goes a long way towards explaining the uneven and frustratingly slow progress in using process/technology to improve legal service delivery without losing site of the fact that progress is being made.

While lawyers may feel compelled to invest in process and technology, it is still outside their wheelhouse. For most, process and technology are areas of neither personal interest nor professional training. And, regardless, lawyers are already overburdened with genuinely important work. This tension would seem to introduce a high likelihood of failure that would only create a deeper suspicion of process and technology. Yes, yes it does. It is almost as if larger law departments and law firms would be well served to have interested, trained resources dedicated to the process and technology aspects of legal service delivery. On the law department side, enter legal operations, a subject for another post.

* Other ‘laws‘ I like (feel free to add your favorites in comments):

Parkinson’s law: Work expands so as to fill the time available for its completion

Sturgeon’s law: Ninety percent of everything is crap

 Hofstadter’s law: It always takes longer than you expect, even when you take into account Hofstadter’s Law

Benford’s law (of controversy): Passion is inversely proportional to the amount of real information available

Sayre’s law: In any dispute the intensity of feeling is inversely proportional to the value of the issues at stake

Cunningham’s law: The best way to get the right answer on the Internet is not to ask a question, it’s to post the wrong answer

Clarke’s (quasi) fourth law: For every expert, there is an equal and opposite expert

Amara’s law: We tend to overestimate the effect of a technology in the short run and underestimate the effect in the long run

Gehm’s corollary (to Clarke’s third law): Any technology distinguishable from magic is insufficiently advanced

Kranzberg’s law: Technology is neither good nor bad; nor is it neutral.

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Casey Flaherty is the founder of Procertas. He is a lawyer, consultant, writer, and speaker focused on achieving the right business outcomes with the right people doing the right work the right way at the right price. Casey created the Service Delivery Review (f.k.a., the Legal Tech Audit), a strategic-sourcing tool that drives deeper supplier relationships by facilitating structured dialogue between law firms and clients. The SDR is premised on rigorous collaboration and the fact that law departments and law firms are not playing a zero sum game–i.e., there is more than enough slack in the legal market for clients to get higher quality work at lower cost while law firms increase profits via improved realizations.
The premise of the Service Delivery Review is that with people and pricing in place, process offers the real levers to drive continuous improvement. Proper collaboration means involving nontraditional stakeholders. A prime example is addressing the need for more training on existing technology. One obstacle is that traditional technology training methods are terrible. Competence-based assessments paired with synchronous, active learning offer a better path forward. Following these principles, Casey created the Legal Technology Assessment platform to reduce total training time, enhance training effectiveness, and deliver benchmarked results.
Connect with Casey on LinkedIn or follow him on Twitter (@DCaseyF).

Lawyers are not anti-technology. Lawyers are pro getting sh*t done. The caricature I drew of the nose-to-the-grindstone inside counsel in my last post was an attempt to illustrate how the need, predisposition, and incentives to focus on immediate, mission-critical work often dominate the competing demand to systematically integrate new process and technology to improve the delivery of legal services.

I don’t blame lawyers (I don’t blame anyone). As I’ve written about before (and will expand on again in another post), technology is not magic and lawyers are not magicians. Properly integrating process and technology takes time and investment of organizational capital. Busy inside lawyers have neither. Yet, at a certain point, they have no choice.

While inside lawyers can often wield the illusion of unpredictability as a shield from scrutiny by other departments (e.g., finance), it only goes so far. Not only are law departments finding it harder to secure exemptions from across-the-board budget cuts, but the opacity that serves them well in maintaining their autonomy also derails attempts to make a compelling business case for more budget, headcount, etc. Law departments really are being asked to do more with less. And they can no longer meet the challenge of more by throwing additional (internal or external) bodies at the problem.

People cost money. And they tend to cost more money over time. Technology trends in the opposite direction (well, most technology). Labor-intensive industries (the stagnant sector) therefore have to raise prices as time passes, while technology-intensive industries (the productive sector) are able to lower prices. Absent confounding factors, there is a gradual increase in the share of spend directed towards the stagnant sector (education, health care, performing arts, and other labor-intensive industries) with a corresponding decrease in the share of spend directed towards the productive sector (food, manufactured goods, and other areas where technology has substantially augmented human labor).

This is Baumol’s cost disease, an economic phenomenon that undercuts the classical theory that wages rise with productivity. The classical theory was that the more productive you are, the more you get paid. The reality is that (across industries, as opposed to within them) the less productive you are, the more we need to pay you (unless there is a glut of qualified workers competing for your job). Unsurprisingly, Baumol himself identified “legal services” as subject to the cost disease. And recent scholarship has concluded, “Legal services are decidedly in the stagnant sector.”

Throwing ever more bodies at a problem is unsustainable. If the problems to be addressed exceed the bodies available, either the problems go unresolved or you find ways to improve the productivity of the bodies you have. Lawyers cannot stand letting problems go unresolved (again, the biggest reason they don’t take time for process and tech is because they are fixated on mission-critical work). So, despite many countervailing influences, inside lawyers are turning more and more to process and technology. Law is resistant, not immune, to productivity improvements.

In Altman Weil’s 2015 Chief Legal Officer Survey, the CLO’s (rightly) identified technology advances as the  force that will most change the legal market in the next 3 to 5 years (the combination of internal cost pressure and unsustainability of law firm pricing ranked second).

Putting their money where their mouth is, law departments also focused their management efforts on the greater use of technology tools to increase efficiency in the delivery of legal services:

The focus on technology also caught the attention of Ron Friedmann and inspired him to ask Is Software Eating Law Departments? while reading Inside Counsel’s annual innovation awards issue:

The 2015 IC10: The law department of the future describes the 10 most innovative law departments of the year. It’s an annual feature. This year, 9 of 10 awards revolve around software. In years past, I recall that only 3 or 4 awards involved software….Reading IC, none of these strikes me as particularly advanced or game changing. Law departments seem to have won for automating processes that, in many other functions, likely would have been automated long ago….The good news here is that 9 of 10 awards are for tech and that law departments can still do so much more with software to improve their performance.

Along similar lines, I was recently contacted for a predictions-for-2016 piece in which the question posed was something along the lines of: what technologies will have the most impact on law firms in 2016? I cheated in responding that law firms should be most concerned with the technologies that law departments are deploying to keep work in-house or manage external work in a more sophisticated manner from multi-sourcing (e.g., involving LPO’s) to matter management to pricing. While the headlines cut in both directions, and there is no immediate existential threat, I do see a continuation of the trend that the biggest law firms’ biggest headaches will come from their biggest customers

Law Firms Face New Competition – Their Own Clients

Spending in Law Departments is Rising, But the Money Isn’t Going to Law Firms

As Part of ‘Pervasive Trend,’ Companies Still Moving Legal Work In-House 

Do I contradict myself? Very well, then I contradict myself. There are competing forces within law departments. In my last post, I dug into some of the reasons why inside lawyers are obstacles, rather than proponents, of innovation. In this post, I made the case that economic imperatives would drive investment in process and technology. Given the opposing pressures and constraints, it is unsurprising that progress is slow and scattershot but continues nonetheless.

Still, there remains a fundamental tension between last post and this post that is worth exploring further. While inside lawyers may feel compelled to invest in process and technology, it is still outside their wheelhouse. For most, process and technology are areas of neither personal interest nor professional training. And, regardless, inside lawyers are already overburdened with genuinely important work. This tension would seem to introduce a high likelihood of failure that would only create a deeper suspicion of process and technology. Yes, yes it does. It is almost as if larger law departments would be well served to have an interested, trained resource dedicated to the process and technology aspects of legal service delivery. Enter legal operations, a subject for another post.

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Casey Flaherty is the founder of Procertas. He is a lawyer, consultant, writer, and speaker focused on achieving the right business outcomes with the right people doing the right work the right way at the right price. Casey created the Service Delivery Review (f.k.a., the Legal Tech Audit), a strategic-sourcing tool that drives deeper supplier relationships by facilitating structured dialogue between law firms and clients. The SDR is premised on rigorous collaboration and the fact that law departments and law firms are not playing a zero sum game–i.e., there is more than enough slack in the legal market for clients to get higher quality work at lower cost while law firms increase profits via improved realizations.
The premise of the Service Delivery Review is that with people and pricing in place, process offers the real levers to drive continuous improvement. Proper collaboration means involving nontraditional stakeholders. A prime example is addressing the need for more training on existing technology. One obstacle is that traditional technology training methods are terrible. Competence-based assessments paired with synchronous, active learning offer a better path forward. Following these principles, Casey created the Legal Technology Assessment platform to reduce total training time, enhance training effectiveness, and deliver benchmarked results.
Connect with Casey on LinkedIn or follow him on Twitter (@DCaseyF).

Last post, I challenged myself after seconding an observation from Toby about discounts. Toby wrote:

Discounts are the market (via specific clients) telling a firm their prices are too high for a piece of work. One might think firms should lower their prices in response to this information, however, that could be a mistake. Sometimes clients shop price by the level of discounts. They are not concerned with the actual price but instead focused on the amount of discount they are extracting. Whether this is rational behavior in an economic sense is not relevant.

My reaction:

“Whether this is rational behavior in an economic sense is not relevant.” Remind me to write a post entitled What’s The Matter With Inside Counsel (preview: they’re human beings).

As the preview suggests, my bottom line answer is nothing. Nothing is wrong with inside counsel. In general, I think inside counsel are quite good at their jobs. The real investigation is why inside counsel sometimes do things that appear to outsiders to be illogical (e.g., the discount issue above), especially their ostensible unwillingness to impose discipline on external counsel. There are a number of interlocking explanations, most of which boil down to inside counsel being busy lawyers who also happen to be human beings.

What follows is a crude sketch. It does not describe everyone. Indeed, it does not describe anyone. The caricature highlights a number of forces that are not always obvious to people who have not sat in the chair or do not recognize the classic principal-agent problem.

They’re busy

 For years now, the mantra of inside house counsel has been “do more with less” (still second only to technology among forces driving change in the market). Gone are the days when moving in-house meant the ‘mommy track’–the sexist description of the supposed lifestyle benefits that have fueled so many escape fantasies. Inside counsel work extremely hard on matters that are vital to the success of their companies.

How inside counsel allocate their finite time is therefore of considerable importance. In general, legal fees are a small percentage of the value of business outcomes. A lawyer who directs their efforts towards saving $10,000 out of $100,000 in legal fees on a $10,000,000 deal does not necessarily have her priorities straight. Getting the right result (the $10M) is more meaningful than 0.1% net savings (the $10K).

Inside counsel rely on outside counsel to help them get the right result. They also rely on outside counsel to relieve as much of the burden as possible. It is not that outside counsel make their life easy, but outside counsel can make inside counsel’s life easier–i.e., just easy enough for inside counsel to almost have time to give proper attention to the many mission-critical matters on their plate.

You know who makes life particularly easy? Incumbent outside counsel. There are legitimate advantages associated with incumbency. Among those advantages are how much less ramp-up time and hand holding incumbents require. Incumbents know the procedures. Incumbents know the personalities. Incumbents know how to get what they need from the company in the least intrusive way. Incumbents (one hopes) have a track record of success. Moving business away from incumbents entails real costs (ramp-up) and risks (to success).

They’re lawyers

It should be here reiterated by this court that the practice of law is a profession not a business or skilled trade. While the elements of gain and service are present in both, the difference between a business and a profession is essentially that while the chief end of a trade or business is personal gain, the chief end of a profession is public service. It is the obligation of lawyers to preserve the heritage which is theirs as members of a time-honored profession, and to justify the confidence which the public reposes in them. It is the duty of the lawyer to make certain that commercialism is not allowed to debase the relationship of attorney and client.

In Re Jacobson, 240 S.C. 436, 448 (1962) 

Inside lawyers are still lawyers. Moving from outside to inside counsel is not usually an epistemically transformative experience. It’s the same people.

They went to law school to do law stuff. They were hired to do law stuff. Contracts, closings, litigation, statutory analysis….is all law stuff. Invoice review, rate negotiation, AFA’s, project management, technology…..not so much. I will refer to the not-law stuff as “MacGuffins.” Given the choice between law stuff and MacGuffins, lawyers will direct their finite focus towards the law stuff.

If you try to convince lawyers to chase MacGuffins, you are likely to trigger the distinct personality of professional issue spotters. As has been discussed in previous posts (here and here), lawyers diverge from the general population on a few key psychological traits (studies from Dr. Larry Richard). By trying to persuade lawyers to focus on MacGuffins, you may encounter extreme instances of:

Autonomy. Lawyers prefer to do things themselves and react poorly to being told what to do. Telling them that they should focus on something other than what they prefer/choose to focus on is a violation of their autonomy. So, too, is bringing in someone else to do it for them.

Sociability. It’s not just that lawyers do not like relying on or taking direction from others, they dislike interacting with them, period. Lawyers score their lowest (12 out of 100) on the sociability measure. The new person or outsider with the new idea about how things could be done differently is going to find it hard to establish the rapport necessary to properly communicate the logic and mechanics of their MacGuffin.

Urgency. Lawyer time is valuable. Deadlines are imminent. Failure is not an option. Lawyers have an ineffable urge to get everything done now. Combine this urge with high autonomy and low sociability, and it all needs to be done now by them. They do not have time for whatever MacGuffin you’ve concocted to distract them from their urgent work.

Resilience. Law has a small margin for error. Lawyers therefore have a low threshold for failure. Their ability to be resilient in the face of setbacks is much lower than the general population (this is the finding that most surprised me). Apparently, the dark side of perfectionism is the paralyzing fear of imperfection. Lawyers are experts. And expertise is often a good excuse not to leave one’s comfort zone. MacGuffins are outside their comfort zone, which means a high prospect for error, failure, embarrassment, etc.

Skepticism. If Moses had been a lawyer, he would have explained to Yahweh that the 10 Commandments were materially incomplete. Lawyers can find holes in anything. Part of this prowess stems from the fact that lawyers are naturally suspicious of new and different. Their innate skepticism gets put on high alert when your MacGuffin also runs afoul of their need for autonomy, demands sociability, conflicts with their sense of urgency, and poses a threat to their low resilience.

1. MacGuffins are unfamiliar and outside the areas in which the lawyer has been trained (skepticism)

2. MacGuffins are not foolproof and introduce the specter of error, failure, embarrassment, etc. (resilience)

3. Avoiding failure and embarrassment requires investing time, effort, and attention, all of which are in short supply (urgency).

4. True success probably also means asking for help (high autonomy) and getting buy-in from other stakeholders (low sociability)

5. Wait, remind me why anyone would volunteer to chase the MacGuffin?

Whether the lawyer personality is born or made remains an interesting question. The most common supposition is that people with the foregoing profile self-select for law school and, even more so, choose to remain in a profession that reinforces and amplifies their predispositions. It is not just the individual lawyers have personalities that are attracted to settled precedent and familiar patterns, they are then shaped by institutions that are also inclined to defend entrenched paradigms. Even if the individual lawyer has a favorable view of the MacGuffin, it is logical for them to survey the institutional landscape and conclude that it will be too hard to get the necessary cooperation, participation, support, funding, etc.

Many aspects of law departments are more culturally similar to the law firms that produced the inside lawyers than they are to the companies in which they now operate. That culture is driven towards homogeneity and unpunctuated equilibrium. In a great post entitled Why things stay the same, Mark Gould shares the research on institutional isomorphism, which is defined as:

Once disparate organizations in the same line of business are structured into an actual field (as we shall argue, by competition, the state, or the professions), powerful forces emerge that lead them to become more similar to one another.

Those powerful forces are:

Coercive isomorphism — resulting from both formal and informal pressures exerted on organisations by other organisations on which they are dependent and by cultural expectations in the society within which they function.

Mimetic processes — in conditions of uncertainty, organisations may model themselves on other organisations.

Normative pressures — these arise from professionalisation, especially when (a) there is a common cognitive base derived from universities and professional training institutions and (b) strong professional networks arise, spanning organisations.

Check, check, and check. Individuals who are risk-/change-averse by nature and nurture are then embedded in a culture that pressures them to operate in a uniform manner. For lawyers, including in-house lawyers, it seems that “worldly wisdom teaches that it is better for reputation to fail conventionally than to succeed unconventionally.”

They’re human

Despite some evidence to the contrary, lawyers are human. And status-quo bias is not just a lawyer thing, it is a human thing. So are loss aversion, regret avoidance, and endowment effects. These are not only cognitive biases, they are woven into the fabric of large organizations. Doing what has always been done is truly the path of least resistance.

For the most part, inside counsel has free rein (and reign) with their outside counsel as long as there are no major screwups, including something resembling adherence to budget. Internal investments in infrastructure, technology, etc. are a  different story. There are many inside counsel who have more authority to spend a $100K on legal fees and then settle the matter for $1M than they do to purchase a $200 piece of software, which raises any number of bureaucratic and procedural hurdles. Similar barriers exist when they try to negotiate alternative external arrangements (e.g., fixed fees and LPO contracts). That’s a lot of work for not a lot of personal benefit.

Generally, the sole ‘reward’ for coming in under budget is a lower budget going forward. This only increases the probability of a major screw up (going way over budget is a different story than coming in way under). Indeed, why would an inside counsel voluntarily reduce their budget in the first place? Inside counsel’s budget is, like a partner’s book of business, their source of power. The bigger their budget, the more sway they have. Part of the tradeoff for earning less money than most law firm associates is that even the partners who take home 50x more than inside counsel still have to kiss inside counsel’s tukhus. More budget means more smooching. It’s easy to convince yourself that your jokes are funny when everyone is laughing.

And it isn’t just about pomp and deference. It is pretty great for you and your friends when they can start expensing all your drinks, meals, golf, etc. Not having to pay for nice outings is one of the hidden perks of being inside counsel. Telling the person who picked up the check that you are going to start putting the screws to them and their firm is simply poor manners, especially when that person is your friend. 

Scoring low on sociability does not mean that lawyers have no friends. Rather, they have fewer, more intense friendships:

Sociability is described as a desire to interact with people, especially a comfort level in initiating new, intimate connections with others. Low scorers are not necessarily anti-social. Rather, they simply find it uncomfortable to initiate intimate relationships and so are more likely to rely on relationships that already exist, relationships in which they’ve already done the hard “getting-to-know-you” part…

The inertia of incumbency is not just professional, it’s personal. Lawyers are frequently friends with other lawyers. They bond in law school. They bond in the trenches of law firms. They bond as part of the inside/outside counsel symbiotic relationship. There is social pressure on inside lawyers to maintain the status quo.

The friendship is not always between the relationship partner and the managing inside counsel. Sometimes, the relationship is with the GC or one of the managing inside counsel’s other superiors, including those on the business side (executives, board members). While it may seem like an instance of Stockholm Syndrome when an inside counsel responds to a potential savings opportunity with “my outside counsel wouldn’t like that,” it can indicate real personal and professional consequences for violating the ‘natural’ order.

The impotence of the nuclear option

Mention of the business side often brings up the ‘nuclear option’ of going above the GC. If the inside lawyers aren’t serious about savings, surely the CEO, CFO, etc. care that Legal is wasting so much money. Not really. Earlier, when I referenced the $10K savings representing 0.1% of the $10M deal, the numbers were not arbitrary.

In a mature organizations, total legal spend as a percentage of revenue is around 0.4%. Even if your MacGuffin can cut total legal spend by 25%, you are only getting at 0.1% of company revenue. This is real money in raw dollars, but it is not the kind of savings for which most executives are inclined to intervene, especially when the GC can list the parade of horribles that will befall the company if the executives do not let the lawyers do their job.

The GC, of course, is not the only department head who is arguing that their team needs more resources, not less (end-of-year shopping sprees are a holiday tradition). But the GC can recite the parade of horribles to great effect because law is really scary. The consequences of legal mistakes can be cataclysmic but the working of the legal system are inscrutable. Lawyers are often treated as clergy who can penetrate the divine mysteries and keep the company in the favor of capricious legal gods. As long as it doesn’t cost too much, the lawyers should be left alone to their alchemy, sortilege, and other numinous pursuits.

The trouble with incentives is that they work

This opacity suits autonomy-seeking lawyers just fine. For all the talk of the perverse incentives that the billable hour introduces for law firms, there is scant attention paid to how the illusion of unpredictability and uncontrollability advantages inside counsel by shielding them from scrutiny. Indeed, just about every MacGuffin for holding outside counsel more accountable also creates additional accountability for inside counsel. Who volunteers for additional accountability?

Even if the MacGuffin works, there is a chance that improvement is interpreted as indictment of the past. The attempt could be seen by predecessors and their allies, many of whom may now be superiors, as implicit attack on how matters were previously handled and, by extension, the people who handled them. Success could serve as a tacit admission that the law department has been wasting resources for years.

Plus, circumstances will eventually create an improvement imperative, and it is sensible to keep the powder dry until eventually arrives. While CEO’s and CFO’s are not apt to meddle in the law department’s affairs (outside of helping a few of their friends at law firms), they are certainly inclined, from time to time, to announce spend reduction mandates that apply to all departments, including legal. The mandate does not care about previous cost-cutting activities. The lawyer (or law department) that has been lax about spending is in a much better position than their zealot peers. The intrinsically-motivated, technologically-enabled, automated, Lean, Six Sigma, Agile legal ninja with metrics about her metrics will have far less low-hanging fruit than the colleague who annually raised rates out of unthinking habit.

The allure of fake pricing

All of this brings us to where the column began: the (il)logic of shopping by discounts. Discounts are familiar and easy to calculate. Discounts fit within the traditional paradigm while also paying homage to the cost consciousness of the New Normal. Discounts guarantee success. Discounts deliver immediate, measurable benefits while avoiding hard conversations, tough decisions, and the real work of exploring alternatives. Discounts appeal to ‘smart shoppers’ who like to brag about how much they saved. Driven by anchoring effects and the dynamics of credence goods (where the inability to objectively measure quality leads to an inversion of the price/demand relationship), discounts (as opposed to less expensive alternatives) thrive based on an implicit acceptance that alternatives are not truly fungible. The $2,000 HDTV is inherently ‘better’ than the $500 HDTV by virtue of the price tag. And isn’t it amazing that I saved $400 when purchasing the $2,000 model? In the legal market, every day is Black Friday.

To the extent the appearance of quality and the appearance of savings have gained currency in a law department, getting ever bigger discounts from a high-priced firm is the best of both worlds. Reprising and expanding the chart from my last post, consider how much the inside counsel is ‘saving’ while their budget (power) increases, their friends make more money, and they get to rely on the ‘best’ outside firm:

Back to reality

Well, that was a long, casual devolution into cynicism. Not only are there conspicuous exceptions to the foregoing (we hand them awards on an annual basis), but, as I explained in the beginning, everyone is an exception to the above. It is a crude sketch, a caricature that highlights pressures, constraints, and influences that are not always obvious from the outside.

I still think the first factor has the most explanatory power. Inside counsel are really busy doing work that is mission critical to the enterprises they serve. They are overburdened and do not have the time or other resources to pursue transformative change within or outside the law department. While not nearly as crucial, psychology and incentives have an impact at the margins. They are also at odds with what seems to be a common view of inside counsel as crusaders consumed with lowering legal spend. There are good reasons why things do not change nearly as fast as the bombastic headlines would seem to suggest.

And, yet, in spite of this textbook agency dilemma, things are changing. The picture painted above would seem to argue that the status quo will persist. But status is not nearly as quo as it used to be. It is almost as if the above is not a complete picture. More on that in a later post.

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Casey Flaherty is the founder of Procertas. He is a lawyer, consultant, writer, and speaker focused on achieving the right business outcomes with the right people doing the right work the right way at the right price. Casey created the Service Delivery Review (f.k.a., the Legal Tech Audit), a strategic-sourcing tool that drives deeper supplier relationships by facilitating structured dialogue between law firms and clients. The SDR is premised on rigorous collaboration and the fact that law departments and law firms are not playing a zero sum game–i.e., there is more than enough slack in the legal market for clients to get higher quality work at lower cost while law firms increase profits via improved realizations.
The premise of the Service Delivery Review is that with people and pricing in place, process offers the real levers to drive continuous improvement. Proper collaboration means involving nontraditional stakeholders. A prime example is addressing the need for more training on existing technology. One obstacle is that traditional technology training methods are terrible. Competence-based assessments paired with synchronous, active learning offer a better path forward. Following these principles, Casey created the Legal Technology Assessment platform to reduce total training time, enhance training effectiveness, and deliver benchmarked results.
Connect with Casey on LinkedIn or follow him on Twitter (@DCaseyF).

Following the AALL conference Mark Gediman’s contentious stance on Google, made the rounds here on 3 Geeks and in various other places. In fact, Mark will be reprising his stance on the famous search engine next week on an SLA CI Webinar, titled “Is Google Enough?” You can register here, if you want to hear it all again or challenge him to a duel. And while the Google Debate is a good one, earlier this week, Greentarget and Zeughauser Group, released their Fifth Annual survey of In House Counsel on their use of Digital and Content Marketing. The results were unsurprising for the most part and suggested that the better the content the more often it will be read. The survey responses and by extension in house counsel, urge law firms to plan out a proper strategy for digital content rather than just writing blog posts for fun. That seems all pretty straight forward to me. Then, I read this nugget:

“Wikipedia is becoming more popular among IHCs; 71 percent said they used it to conduct company and industry research — up from 51 percent in 2012. “

The answer to that survey question scares me more than the potential repercussions of the Google debate. Why and how, are in house counsel relying on Wikipedia for anything, let alone company and industry research? Don’t get me wrong, I think Wikipedia *can* be a great starting point, and I use it often. But it is a starting point, a means to an end and certainly not to be relied upon. Can you imagine using Wikipedia for due diligence research? Crowd sourced information worries me, the way Big Data scares me. Anyone can publish anything to Wikipedia and it will stay there until someone else takes it down. I would rather see in house counsel relying on company websites, twitter feeds, government industry analysis or even editorials. I understand that unlike law firm lawyers, in house counsel often don’t have the luxury of staff Librarians, CI practitioners, corporate researchers or others who are skilled at and have the time for research, but surely there is a better (though not faster) source than Wikipedia.

It may be time we pull back from the ease of the internet and think about artisanal research, bespoke industry analysis and custom reporting. The tools and technology available to us today, make research accessible and easy, if budgets allow there are plenty of SAS products out there that can help bring all your vetted sources into one newsletter or portal to make that type of research Wikipedia-fast but factually accurate and integral too. I won’t belabour the point, I think 3 Geeks readers are savvy enough to know where I am heading with this rant. Instead, in true collaborative fashion, I will urge all in house CI researchers, librarians, information professionals, marketing research or social media folks to reach out to their legal teams and provide them with alternatives to Wikipedia, establish some kind of information pipeline that has integrity and depth and that can be shared via RSS to intranets and other portals. And I will ask those in the same roles in firms to think about what value added services we can provide to clients that might be better than Wikipedia and help mitigate the risk of bad information as well. As I always say…information is quick, intelligence takes time. You can decide which you prefer to provide and use.

I wrote a post last week in which I called for a moratorium on the term Artificial Intelligence in relation to the law.  Instead I suggested that you should just replace AI with the term Automation because “they’re exactly the same thing, at least as far as the current legal market is concerned.”

Some people took me to task for over-simplifying the issue. Fair. Some seemed to think that I didn’t understand that AI and Automation were separate things, and they helpfully sent me links to Wikipedia pages and dictionary definitions of AI.  Very kind, but unnecessary.  I assure you, I understand the differences.

My underlying point – and admittedly I sometimes meander on my way to getting there, which can cause confusion, consternation, and even anger among my less patient readers – was that, much of what we call artificial intelligence in the legal industry is simply the automation of historically manual processes.  And if we refer to these things as “Automation” instead of “Artificial Intelligence” we are more likely to have intelligent, thoughtful, and meaningful conversations about the future of legal practice, than we are to run screaming through the halls, crying uncontrollably, and tearing out our hair for fear of the robots coming for our jobs.

I know many of you will find this hard to believe, as I usually revel in setting verbal fires, but my goal in abandoning “Artificial Intelligence” as a term was to improve the overall quality of discourse surrounding the use of Artificial Intelligence in the practice of law.

John Alber, former Strategic Innovation Partner at Bryan Cave and current Futurist-in-Residence for ILTA, called me out for over-simplifying.

Arrgh!  Fine. I’m not going to fight with John, he was the first person I ever met and an ILTA conference and, more relevantly, he’s right.  So I suggested an alternative.

But Kenneth Grady, former CEO of SeyfarthLean and current Legal Future Evangelist rightfully suggested:

So I stewed.  Pushed it to the back of my mind and focused on other far less interesting, but more profitable things like work. Until today during lunch, when I was reading an article on Augmented Reality and it suddenly hit me.  The middle ground between Artificial Intelligence and Automation is Augmented Intelligence.

I suggested this alternative to my twitter colleagues and Kenneth Grady helpfully suggested the addition of Human.

And there it was, the term I was looking for.

Augmented. Human. Intelligence.  #AHI

It’s much less hysteria inducing than the term Artificial Intelligence.  And arguably, it’s a more accurate representation of what is happening now in the computer assisted practice of law.

So, today I am calling for a moratorium on the term Artificial Intelligence in the practice of law (unless you are actually talking about a Turing machine that bills by the hour), because whether we’re discussing Watson, Ross, Kira, or Kim, we’re talking about Augmented Human Intelligence.

Every year after ILTA, I generously offer to publish the written version of my co-presenters talks here on 3 Geeks. This year Noah Waisberg’s written contribution wasn’t delivered to me until late November (nearly 3 months after we presented!!) and I publicly chastised him for his “much belated” contribution.

It turns out that Noah had a very good excuse for his tardiness.  He has been quietly working for the last several months on writing his magnum opus on machine learning. Noah is uniquely qualified to write this book.  He is the CEO and founder of Kira Systems, a machine learning contract review platform.  But more importantly,  Noah is the father of two small children. 
******SPOILER WARNING!  SKIP TO THE SPOILER FREE TAG IF YOU WANT TO BE SURPRISED!******
Subtitled Machine Learning for Kids, Robbie the Robot Learns to Read is the inspiring tale of an illiterate robot who overcomes great odds to comprehend the texts in front of him.  Like any other ‘person’, Robbie ultimately succeeds with the help of his school teacher (a far-sighted tortoise named Ms. Snead) and the support of his new friend, Alex the owl. 
Although, to be honest, if Alex was giving his advice to anyone other than a robot, he might be the villain of this story.  His advice boils down to:

 “Just keep reading for examples, the words will make sense once you have enough samples.” 

Not helpful Alex!  Although, in this case, it is exactly what Robbie needed to hear and eventually Robbie learns…

“after studying heaps, that you can know a word from the company it keeps.”

******SPOILER FREE FROM HERE ON!******

Robbie the Robot Learns to Read is probably the best children’s book ever written on the topic of machine learning. It rises far above it’s slender 250+ word count to accomplish what many longer, and less rhyme-filled, computer science treatises cannot. It is thoroughly engaging, informative, fun, and Noah assure’s me, it is absolutely, one hundred percent, a scientifically accurate representation of how machine learning works.  When asked for verification of this claim, a leading and reputable computer scientist replied:

“Um, sure. Why not?”

And there you go. If you’ve got a particularly nerdy toddler, or a Luddite Law Firm Partner, on your holiday gift list, Robbie the Robot Learns to Read may be just the thing they need.

Available at RobbieReads.com & Amazon*  

Personally, I can’t wait for the sequel: Robbie the Robot Gets a Really Boring Job in a Law Firm.

Although, that probably won’t be nearly as inspiring as the first book.

*3 Geeks does not receive any proceeds from sales of Robbie the Robot Learns to Read.

I am calling for an official moratorium on the term Artificial Intelligence in relation to the law!  Everyone please just stop using it. It’s a needlessly charged word that only confuses and clouds the underlying issues whenever it comes up.

From now on any time you feel the need to use the term Artificial Intelligence, replace it with Automation.  No seriously, they’re exactly the same thing, at least as far as the current legal market is concerned. Whereas, AI carries connotations of ‘robot lawyers’ replacing people, Automation seems friendly, simple, even mundane.  That’s good.  Automation is the future of legal practice.

My friend Ron Friedmann posted a Twitter poll last week that got my hackles up.

Come on people!  Really?  Collaboration software!?  Biggest impact on legal market in next 3 years? Do people even read the question before they start ticking boxes?

Don’t get me wrong, I am a huge fan of collaboration software.  I firmly believe that modern collaboration tools are a fundamental requirement for any modern law firm, akin to a document management system, a productivity suite, and maybe a handful of lawyers.  But the ‘most impact on legal market’?  Tech that has been widely available for 10 years, that everyone is already using, even if IT or firm management frowns on it.  I don’t think so.

The correct answer, and the one that was chosen by a majority of respondents, is Automation.  I know, Automation wasn’t officially a choice, but look at the options again.  AI/Machine Learning and Contract Analytics collectively received 58% of the votes. Contract Analytics is a form of AI/Machine Learning and they should have both been listed as Automation tools.

Woo hoo!  Ron’s readers aren’t dumb, they just got a little confused by the options. Easy to do, when the confounding term AI rears it’s ugly head.

This was all bouncing around in my head yesterday when I saw the following article on Bloomberg BNA.

Another Law Firm Adopts Automation Technology

In the latest sign that more and more legal services are being automated, Akerman has announced it will operate a data center that allows corporate clients to quickly look up data privacy and security regulations without having to consult a human lawyer.

Look at that. The beauty of it. The simplicity. The near total lack of hysteria about robots stealing jobs. And guess what words don’t even appear in the article:  Artificial and Intelligence.

But you know what that article is about?  The biggest impact on the legal market in the next 3 years.

Automation.  Or as I like to call it, the creation of Legal Engines, by Legal Engineers, to automate the practice of law one task at a time.

If only someone had foreseen that such a thing might happen.

I’ve shared elsewhere the story of my first contact with law firms. I was not a lawyer. I was a sandwich jockey. I didn’t make the sandwiches, I sold them. I was an account rep for a historic Los Angeles deli. My biggest account was a law firm. They were my best and worst client. Best because they bought a lot of sandwiches. Worst because they were never satisfied.

Well, not they. Nancy. Nancy, the office administrator, was never satisfied. She had been directed by the managing partner, who loved our sandwiches, to order from the deli. She obliged. But she always felt compelled to get a ‘deal.’

The first time Nancy ordered sandwiches, she reported that they were good but expensive. I responded that the price was the price. She explained that the firm could be a major customer and as a volume purchaser expected a volume discount. To my surprise, my manager agreed. Nancy got a discount.

The second time Nancy ordered sandwiches, she complained that we had sent too many. We hadn’t. The invoice matched what I had written down when she called the order in. But she was the customer, and the customer is always right–even when the customer is full of it. Nancy got a discount.

The third time Nancy ordered sandwiches, she was livid. The sandwiches had not arrived on time. She was technically correct except for one mitigating fact: the sandwiches made it to the firm’s building in plenty of time. But someone [cough, Nancy, cough] forgot to notify the front desk of the delivery. The sandwiches were only late because it took so long to sort out the permissions. Still, Nancy got a discount.

The fourth time Nancy ordered sandwiches, she called to complain that they were not quite as good as usual. Horsepuckey! I ate at least four sandwiches a week for years. They were always good. We used the same ingredients and made them the same way. I pressed Nancy for details. She had none. Supposedly, she was relaying vague complaints from “some people.” Regardless, Nancy got her discount.

And so it went. The firm ordered a lot of sandwiches but Nancy found some pretext to knock down the bill. She seemed to think it was her job to save the firm pennies on pastrami. Except, of course, there was no Nancy. And I never worked in a sandwich shop (receptionist and construction worker were my odd jobs in high school).

The foregoing is a fable I fabricated when I worked at a law firm. It was my analogy for my experience with our clients and their never-ending demands for discounts. Law firm clients were the best and the worst. As regular readers of this blog know, when I went in-house, I tried to be different.

Discussions about price are important. But we have an unfortunate tendency to use price as a proxy for everything else. Think about the story above and how price was used as surrogate for a host of other complaints:

A demand for a discount can act as a signal of discontent. But it is a weak signal with low informational content. Why is the discount being requested? Because the firm is doing something wrong? Or because the client has pressure on their end? Moreover, once discount demands become standard operating procedure, the signal is lost in the noise of the relationship. As illustrated in the story above, you can provide the discount requested without ever believing that it speaks to the underlying reality–i.e., there is no compelling reason to interpret the discount as a signal suggesting that you alter your behavior.

The most compelling examples of how discount obsessed we can be are the many anecdotes of firms with lower rates losing business to firms with higher rates but deeper discounts. The story normally goes something like this: Minnesota firm with an average billable rate of $300 was bidding against New York firm with an average billable rate of $600. Client informed Minnesota firm that New York firm was offering a 15% discount. Minnesota firm observed that this still meant the New York firm was still significantly more expensive at $510/hr. Client chose more expensive firm, supposedly, because of deeper discounts. This behavior is so prevalent that, in his series on profitability, Toby wrote:

Discounts are the market (via specific clients) telling a firm their prices are too high for a piece of work. One might think firms should lower their prices in response to this information, however, that could be a mistake. Sometimes clients shop price by the level of discounts. They are not concerned with the actual price but instead focused on the amount of discount they are extracting. Whether this is rational behavior in an economic sense is not relevant.

“Whether this is rational behavior in an economic sense is not relevant.” Remind me to write a post entitled What’s The Matter With Inside Counsel (preview: they’re human beings). Speaking of rational behavior, doesn’t the dynamic described above seem to suggest that firms should actually raise rates so they can deepen discounts. I’ll let the headlines answer the question.

Billing Rates Rise, Discounts Abound

BigLaw Will Discount Deep To Keep Big Clients Happy

Charging more, getting less

On Sale: The $1,150-Per-Hour Lawyer

Infographic Friday: Billing Rates Up 4%, But So Are Discounts

As I’ve written before, the rack rate is a fiction. No one pays MSRP. Just as with so many retailers, especially during the holiday season, anchoring effects (i.e., fake pricing) give the illusion of a deal. Likewise, as with car dealers, having a higher published price with the built-in ability to negotiate individual discounts gives law firms the flexibility to engage in differential pricing.

You can play rack-rate kabuki for an extremely long time. The price increases compound while the discounts are taken from the new top rate. Below is a very simple model where a law firm raises rates at the 4% number from the headline above while also giving clients a bigger discount every year.

In case you are curious, the inflection point arrives in 2080. After 70 years, the paid rate stops increasing. By then, the rack rate is $6,400, the discount is 75%, and the paid rate is $1,600. This linear extrapolation is neither a prediction about the future nor a nuanced discussion of the present (which would include writedowns, writeoffs, demographics, etc.), but I hope it illustrates how a singular focus on discounts can help explain the seeming disconnect between the perception of client pressure on law firms to change and law firm response, or lack thereof, to that pressure.

Looking at the legal market not through the bombastic lens of what many law departments proclaim to want (AFA’s, technology, efficiency) but through the tepid lens of what most actually demand (discounts) begins to make sense of the managing partner response to Altman Weil’s question in their 2015 Law Firms in Transition survey. Why aren’t law firms doing more to change? Clients aren’t asking for it.


Asking for a discount is fine. It is completely sensible for law departments and law firms to negotiate price. But asking for a discount is asking for a discount. Asking for a discount is not asking for change. If law departments genuinely want change, asking for a discount is the wrong conversation.

ADDENDUM: A few more random notes/thoughts on discounts that were not necessary to make the point above but may be of interest to some.

Discounts can have a directly measurable impact on total cost. Measurable savings is part of the discount’s appeal. But this, of course, assumes that the rack rate from which the discount is calculated is something that the client would have actually paid. Even if rack rates are not a total fiction, they are not automatic. What is really happening in the chart from above is that the client is negotiating down the size of the annual rate increase. Even if the size of the discount did not go up, they still would not be paying the rack rate. Much of the savings between the rack rate and the paid rate is illusory.

In addition, to calculate savings from discounts, you have to assume that the other part of the equation, hours, remains constant. Not everyone shares this assumption. I was recently at a conference where the head of legal procurement for a large retailer exclaimed, “Can we all admit that discounts are a game? That whatever firms concede in terms of discounts they will make up in terms of hours somewhere?” I don’t think we need to have that dim a view of law firms to understand the logic of the point.

As Toby explains above, some clients will shop based on discount. That is, they will choose not based on actual rates but on the deepness of the discount, even if the deeper discounted rates are still higher. Depending on their mandate to report ‘savings,’ this seemingly perverse preference can make some degree of sense (I’ve known people who would be much happier about saving $100 on a $500 purchase than saving $25 on $200 purchase that would have served them just as well). Still, while an incumbent firm may not manufacture hours to make up for the steepness of a discount, there is considerable variation between firms. While it is illogical to choose one firm as opposed to another based on the depth of the discount, it can be even more illogical to base the choice on rates at all.

We are familiar with this variation at the individual lawyer level. We don’t want the $300/hr associate spending 10 hours to arrive at the same conclusion (if we’re lucky) the $600/hr partner would have reached in an hour. There is a bigger quality risk, and it costs 5x as much. The same dynamic holds between firms. I’ve seen ‘overpriced’ New York firms repeatedly handle substantially similar matters at half the total cost of Midwestern competitors with substantially lower rates. [Then again, I’ve also seen no-name boutiques blow the doors off AmLaw 100 powerhouses and LPO’s find economies of scale where a traditional law firm could only throw more expensive bodies at the problem. Name isn’t everything. Rates aren’t everything. Price isn’t everything.]

Indeed, hours can vary to a much greater extent than rates. From firm to firm, you can see 2x to 5x the number of hours billed on substantially similar matters. This very easily swallows up the difference in rates attributable to discounts. Because, when we talk about discounts, we’re really talking about something in the neighborhood of 10%.

Candidly, I thought it would be more than that (closer to 15%). But what really surprised me is that not every client gets a discount. The CLO’s were not queried on this particular point. But the managing partners were.

Even in BigLaw, 60% of the revenue comes from non-discounted rates. I didn’t really believe this. I still don’t. But it made me reflect on a discussion I had with Toby (followed by a similar one with Peer Monitor) in the lead up to my post on law firm realizations. There is a concept called “standard rate.” Standard rate is not standard. As far as I can tell (and, really, I have not mastered this concept), the standard rate is the baseline rate against which certain measurements (e.g., realizations) are calculated. But there is no settled methodology for determining standard rate. It does not need to be a published rate (of which there can be many– e.g., national rate versus local rate). Nor does it need to be a rate that any client actually pays. My guess (again, really, I’m guessing) is that the answers above are based on fees versus standard rate rather than fees versus the highest published rate. Yet, when talking to clients, the latter (highest published rates) is what the discount is calculated against. So clients may think they are getting a discount (i.e., compared to published rate) while the firm may be charging them standard rate or higher.

This all strikes me as familiar because I spent a few years in the car industry. Published rates are something like MSRP, a.k.a. “sticker price.” Many people know to never pay above sticker price, but they don’t always know why. To the extent they do, it is usually because they are familiar with the concept of dealer’s invoice – the concept closest to standard rate. That is the price the dealer is actually invoiced by the distributor for the vehicle. There is always a difference between dealer’s invoice and sticker price. But, here’s the thing, even the dealer’s invoice is not what the dealer pays for the vehicle. Just as the distributor is always offering the consumer a deal ($0 down, $500 cash back, low APR), they are also offering incentives to their dealers. These programs can vary wildly from month to month, can be introduced near the end of a month to make a final sales push, and can focus on certain models or certain numbers (e.g., an additional $200 per car for selling above a # target). Even if you are the person creating these programs, you typically need a spreadsheet, dealer-specific information, and a cocktail to calculate what a particular dealer is actually paying the distributor for a particular vehicle. It sometimes feels like complexification in the service of obfuscation. I often feel the same way when I think about law firm discounts.

 

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Casey Flaherty is the founder of Procertas. He is a lawyer, consultant, writer, and speaker focused on achieving the right business outcomes with the right people doing the right work the right way at the right price. Casey created the Service Delivery Review (f.k.a., the Legal Tech Audit), a strategic-sourcing tool that drives deeper supplier relationships by facilitating structured dialogue between law firms and clients. The SDR is premised on rigorous collaboration and the fact that law departments and law firms are not playing a zero sum game–i.e., there is more than enough slack in the legal market for clients to get higher quality work at lower cost while law firms increase profits via improved realizations.
The premise of the Service Delivery Review is that with people and pricing in place, process offers the real levers to drive continuous improvement. Proper collaboration means involving nontraditional stakeholders. A prime example is addressing the need for more training on existing technology. One obstacle is that traditional technology training methods are terrible. Competence-based assessments paired with synchronous, active learning offer a better path forward. Following these principles, Casey created the Legal Technology Assessment platform to reduce total training time, enhance training effectiveness, and deliver benchmarked results.
Connect with Casey on LinkedIn or follow him on Twitter (@DCaseyF).