Corporate-Minded Law

September's ABA Journal has a feature story on the growing momentum of private equity legal-service companies taking market share away from the traditional law school model.

According to the article, "Backed by institutions, private investors and hedge funds, these entrepreneurs and financiers employ a growing legion of lawyers in the United States and offshore."

"Even though their enterprises don't counsel clients—they are prohibited from doing so by the ABA Model Rules of Professional Conduct—they are changing expectations about how legal services are priced and delivered."

The common denominator for these legal service companies' business models is the unbundling of traditional legal disciplines and then providing specific efficiencies.

• Some drive down costs by automating routine legal tasks.

• Others assemble dedicated teams of lawyers for in-house legal departments to draft simple contracts, review documents and conduct research.

• Still others use proprietary models to predict probable outcomes in complex commercial litigation, then contract to finance the most promising cases, freeing up corporate litigants' capital for other uses.

This emerging hybrid of lawyer-entrepreneurs "speak a language investors understand. Rather than profits per partner, they talk about market share and return on invested capital. They converse as easily about finance, technology and management as finer points of law. And their enterprises produce steady returns even when unemployment soars and stock markets tank."

More Movement Away From Hourly Billing

LegalWeek.com reported last week that both Mayer Brown and Reed Smith are evaluating new cost structures that will bring fixed or capped fees for transactional work.

"Mayer Brown's senior management is in the process of reviewing how the firm bills clients and is considering proposals to overhaul fee structures for core transactional practices including corporate, banking and real estate.

The proposed changes, which the firm said have been accelerated as a result of client demand for greater certainty during the downturn, would see Mayer Brown offering fixed fees for all transactional work, as well as more regularly using abort agreements and success fees.

Separately, Reed Smith has also been looking at changing fee structures within its transactional practices. The firm has a committee made up of partners from across the firm reviewing proposals and is looking at an increasing use of fixed or capped fees for clients within its financial industry group (FIG), corporate and real estate practices, for transactional work."

Sure, this is an important development simply because it signals the readiness of two of the larger global firms to reassess historically entrenched billing practices.

But, actually, the implications are even more profound. This development is more than a possible trend in cost structures and more than a comment on difficult economic times.

Fixed pricing for transactional work, by definition, encourages the unbundling of legal services. The act of articulating an a la cart menu of legal services is, in itself, a form of unbundling.

Transactional pricing isolates the tasks being performed and separates them from other services. And that is inherently different than the traditional business model of a firm offering a stew of services, all intertwined, and all covered by the umbrella of billable hours.

As we quoted Robert J. Ambrogi back in April:

"Legal services are evolving from a highly bespoke, highly customized product toward becoming a commodity. As part of this evolution, legal work will be unbundled into its constituent tasks and many of those tasks will be standardized and systematized."

Another brick in the wall.

The Business of Law vs. The Service of Legal Counseling

The New York Times ran an article last week on how the most venerable law firms -- we're talking multinational, centuries old, most upper of the upper crust firms -- continue to purge their ranks in unprecedented fashion.

As anyone who is paying attention knows, the landscape of how legal work is organized and delivered is shifting beneath us as we speak. What no one knows exactly is how it's all going to shake out.

But there were a few more interesting signposts offered in the Times article that may at least help shape the way we perceive and articulate it.

Here is what the New York Times had to say (and I'm reordering some of their paragraphs):

"The gentleman’s profession of the law is becoming a vestige of the past, removed enough from reality to be remembered, like phone booths or fedoras."

"... the natural order of this world has been set on end by the economic crisis and the possible disappearance of fixtures like the pyramid system (under which associates are thrown en masse at certain cases, fattening the fees), and the billable hour itself (increasingly replaced by flat rates or retainers in a client’s market). The tectonic plates have begun to shift in a nauseating manner, bringing fear, ambiguity and psychological scars."

Philip K. Howard, a senior partner at Covington & Burling, another multinational firm, laments
that as the bottom line increases in importance, the traditional role of the lawyer as a trusted counselor slips away.

In another passage, Mr. Howard underscores his observation, saying that he's not really "interested in the business of law".

In other words, Mr. Howard is equating the current emphasis on the bottom line with the "business of law", and distinguishing that from the role of lawyer as counselor.

And this is consistent with our conversation regarding the distinction between legal information and legal advise.

The unbundling of legal services that we've been watching unfold in front of us can be framed in this way: the business of legal work is being separated from the service of legal counseling.

If this way of looking at it is accurate, and if this divide -- between the business of legal work and the service of legal counsel -- continues to solidify, that would seem to argue for the continued growth of LPO as attractively priced virtual associates and virtual attorneys to contribute to the business of legal work.