What's A Lawyer Worth?
‘What’s a lawyer worth?’ is a serious question that could also launch a stand-up routine. In a free market economy, compensation is generally linked to the value of the service; supply and demand; complexity/specialization; and urgency/available resources. Law has operated as a guild-- not a competitive market—until recently. And that is the seminal reason why lawyers are so expensive.
Technology, the global financial crisis, and globalization have changed the buy/sell dynamic across multiple industries—law included. The legal guild no longer operates as an independent island ruled by lawyers. Consumers recognize that:
law is both a profession and business;
legal practice is no longer synonymous with legal delivery;
lawyers simultaneously represent two clients: the one that retains them and society at large; and
law has a distribution problem described by Derek Bok, a lawyer and former president of Harvard, as “far too much law for those who can afford it and far too little for those who cannot.”
The legal industry is experiencing unprecedented change because consumers—not lawyers—are now driving the bus.
Let’s Separate the Profession from The Business
Law is both profession and business, and lawyers want to have it both ways. The profession zealously defends self-regulation, rationalizing that lawyers are uniquely qualified to protect the core tenets of the profession. But law is also an enormous global business—approximately $1Trillion. Legal practice is no longer synonymous with the business of delivering legal services, and law firms have been slow to adapt their delivery methods and implement new tools in recognition of that distinction. Lawyers generally resists digitization and re-regulation that can streamline delivery, cut cost, and make legal service accessible to millions of new consumers. They do so under the guise of ‘protecting’ unwary consumers against the unauthorized practice of law by unscrupulous, unlicensed providers. But that ‘protection’ hikes up prices, discourages competition, frustrates innovation, and prevents tens of millions of prospective legal consumers from entering the legal marketplace because of its inflated cost. Legal culture is rooted in precedent, not innovation.
Why not separate regulation of the practice of law from the business of law? This is precisely the legislative counterpoise at work in the UK where The Law Society governs practice issue and the Solicitors Regulatory Authority (SRA) determines permissible business and delivery structures for legal services. Unlike the U.S., UK regulation is premised on a desired outcome: to improve access to legal services and to do so by encouraging competition and innovation. It’s time the legal profession recognizes that the access to justice crisis and discontent with legal cost, inefficiency, and hubris have a deleterious effect upon society and lawyers.
“Now We’re Just Haggling Over the Price…”
Let’s return to price. It seems that everyone—except lawyers—believes they are too expensive. The sole exception, ironically, is the highest priced lawyers. That’s because those lawyers have differentiated expertise, skills, and judgment required for matters whose client value renders them price insensitive (at least for the lead lawyers). But for all but this roughly one-percent of cases, there is not the same correlation between client value and cost. Law is moving from a labor-intensive industry where only lawyers perform all ‘legal’ work to a digitized paradigm where legal expertise is leveraged by technology and process to provide ‘faster, better, cheaper’ solutions. In the digital legal marketplace, lawyers work side-by side with other professionals, paraprofessionals, and machines.
Why is there such a marked divergence between what lawyers think they’re worth and what the rest of society does? Here are some explanations: (1) legal culture; (2) legal exceptionalism and the bespoke myth (3) self-regulation; (4) the incumbent legal delivery structure; and (5) the traditional legal economic and reward structures.
Legal culture is rigid, hierarchical, pedigree-centric, internally-focused, cautious, and reactive. It rewards input and stasis, not output and innovation. Lawyers are trained to ‘leave no stone unturned’ to be ‘right,’ to provide ‘the best legal work possible,’ to be risk-averse, and to identify problems, not to fashion solutions. Lawyers—not clients—have historically determined what is a ‘legal’ matter, the resources required to handle it, the structure from which services are delivered, and the cost. That’s changing at the insistence of legal consumers. If one is looking for evidence of lawyer hubris, consider that even with the erosion of law firm market share--due in no small measure to price-- firms continue to raise rates.
Self-regulation is another cause of inflated legal cost. For years, the legal industry operated as a guild; regulation was designed to protect lawyers from incursion by other professionals and paraprofessionals. It perpetuated a legal culture of ‘lawyers and non-lawyers’ that fueled the myths of lawyer exceptionalism and bespoke work. Lawyers believed they were exceptional by dint of licensure; only lawyers were qualified—or so they believed—to perform the work they did. This played into the bespoke myth; lawyers maintained that all legal matters are unique, inherently complex, and, implicitly, worthy of premium rates.
That’s all changing due to an oversupply of lawyers, technology, globalization, and a reboot of the buy/sell dynamic resulting from the global financial crisis. Clients—not lawyers-- now determine what requires a lawyer. They increasingly view ‘legal’ matters as business challenges that raise legal issues. And in a disaggregated legal marketplace that is rapidly moving down the road to digitization, the ‘bespoke’ myth has become as antiquated as the ‘for services rendered’ invoice.
The price of differentiated legal services will continue to rise, but that is a shrinking piece of the pie. Clients recognize they no longer need to pay premium pricing for all tasks once considered ‘legal.’ In a disaggregated marketplace, legal consumers will pay a premium practice for ‘practice’ exceptionalism but not for legal delivery. Put another way, legal practice is shrinking and legal delivery is expanding. A handful of elite corporate (in-house) legal departments and providers are forging new delivery models. These providers have corporate structures, with performance and reward systems geared to output—results and performance. Their culture is diverse in the truest sense of the term, and their DNA resembles business, not traditional law firms. Their workforce is comprised of lawyers, other professionals, paraprofessionals, and machines. Their modus operandi is to pair the appropriate resource to the task.
The incumbent legal delivery structure is another price escalator. The traditional law firm partnership model maximizes profit-per-partner (PPP) by labor intensity-lots of hours billed, high rates based on the ‘bespoke’ and ‘no one else can do it’ myths, and a pyramidal structure. In the law firm partnership model, stakeholders whack up profits every year—in contrast to corporate structures where residual equity in the organization and an alignment with its longer-term success encourage stakeholder (re) investment in tools that enhance delivery and competitiveness. Older law firm partners have little financial incentive to leave money on the table to invest in the firm’s future, and this financial misalignment with younger partners exacerbates a generational divide and discourages true innovation. Law firms have recently engaged in relentless internal cost-cutting that includes ‘de-equitization’ of under-performing partners, lawyer and staff lay-offs, and reduction of overhead to offset flat or declining customer demand and prop up PPP. But these measures do not address core structural issues that are causing consumers to turn to other options. Nor, ironically, is cost alone the reason consumers are migrating work in-house or to providers that operate from a corporate structure and embrace digitization.
Traditional legal performance and reward systems are misaligned with consumer expectations. Lawyers are measured by input—hours and business origination. Today’s business climate—law included—focuses on output—results and value (achievement of client objective relative to cost). Most lawyers have an ethos and reward system that values all tasks and client matters equally. That’s different than the client perspective that assigns different values to legal assistance. This helps explain law's resistance to technology and process. It also accounts for the high cost of legal services and why legal consumers and the millions of unserved in need of legal services believe that lawyers are not worth what they charge. Lawyers and legal regulators (in the U.S.) are resistant to deploying tools and embracing resources that will reduce cost and make their services available to a wider audience. They are unwilling to change the structure--and culture--they are accustomed to. Such was the case with physicians decades ago; doctors are now part of a healthcare industry that is well down the digitization path. They 'practice' medicine but not in the same way as when they were also responsible for delivering medical services.
Lawyers are experiencing a consumer and technology-driven transformation of their industry, a metamorphosis that has already occurred in medicine and other knowledge-based professional industries. The ‘practice’ of law is narrowing as consumers realize that relatively few ‘legal’ tasks require differentiated expertise, judgment, and skills. This will have significant economic consequences within the legal industry. It means that many lawyers will no longer be working from the traditional law firm structure and its price escalators. Instead, many will soon be working in corporate environments, collaborating with other professionals, paraprofessionals, and machines. They will be charged with compressing delivery cycles, streamlining efficiency, reducing cost, working within budgets, identifying products to replace services, and automating. They will be rewarded by achievement of these metrics, not by hours billed. Many will migrate to public interest and new provider positions where their ‘practice’ skills will be melded with a suite of operational ones. Many lawyers will function differently—and from different delivery models—than they do now.
This will inure to the benefit of legal consumers. And most importantly, law will correct its distribution problem and provide accessible, efficient, and affordable services to the tens of millions of individuals and small businesses in need of it. This will be good for society and for the rule of law. Without the rule of law, lawyers would be out of business and of little worth to anyone.
More from Mark A. Cohen you'll find in our Thought Leader Section and via the links below. Articles by Mark are also published at Forbes and on his platform LegalMosaic.
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