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The New Normal

The $60-Per-Hour LawyerWhy Dewey Isnt Ab-Normal

Posted Mar 28, 2012 9:05 AM CDT By Paul Lippe

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Reprints When structural change happens, we like to look for individual agency find someone who made a mistake and blame them. But Deweys problems are more indicative of basic changes happening in law (driven by the broader world) than they are unique boo-boos by Dewey. The best description of the legal market and the implications for firms in the New Normal comes from Jeffrey Carr, the General Counsel of FMC Technologies. According to Jeff, lawyers do four things:

Advocacy representing the clients interests in relationship to external parties, most commonly litigation; Counseling advising the client on actions that favor long-term over short-term interests; Content providing information about legal issues; and Process moving information from one place to another to create legal work product, typically either generating or analyzing contracts, or working through discovery-based work in litigation or investigation. To use some simple numbers we've developed at Legal OnRamp (and no one has ever been able to tell me they have more accurate numbers), the high-end legal market (2,000 biggest clients - internal and external spend, and 200 biggest law firms - all revenues) is about $160 billion worldwide; for our purposes we can roughly estimate each of these four segments as a quarter of that, or $40 billion per segment, although its likely that process work represents a larger share. If anyone has more precise data, I would welcome it. If you were to summarize the primary developments in the legal market in the last 30 years, it would be: a. Massive growth in overall legal work, mostly process work driven by an overall information explosion; and b. Relatively faster growth in in-house versus firm work, driven by a cost advantage, but without yet a strategic shift. When lawyers describe what they do, they may say we do very sophisticated, unique, betthe-company work. In fact, most of the work that actually gets billed is process work. Just look at an enormous bill like the Lehman bankruptcy. How many of those hours represent unique insight, and how many represent moving information from one place to another?

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Jeff would say that lawyers are very good at Advocacy and Counseling, but not particularly good at Content and Process, which is no surprise, given that (a) all our training is around Advocacy and Counseling, and (b) technology and management techniques have radically changed Content and Process work in other fields. Yet we have only occasionally embraced those new methods in law. As we accelerate into the New Normal, Jeffs rubric illustrates why we will continue to see more Deweys, where, like in Casablanca, folks will be "shocked" by financial shortfalls: Advocacy work will remain dominantly the province of firm lawyers, but they will increasingly have to be good at true advocacy, not stretching out of disputes and process work. Both the price of an hour of advocacy and demand for it will continue to grow. Counseling much of the counseling work has moved in-house because it requires deeper understanding of the client and its people, but there will always be times when a firm lawyer can be better at counseling either because they have a more independent perspective, a broader set of experiences or greater reputational value in delivering unwanted news. The price of an hour of, and overall demand for, counseling is likely to be pretty flat. Content work has been shrinking overall for some time. How many times have you heard in-house lawyers say "we wont pay for a memo?" In a Google-y world, the price (not value) of content will drop radically, and it will either be delivered by specialty content firms like Practical Law Company or the Legal Research Center, created by networks like the General Counsel Roundtable or ACC, given away to build relationships, or embedded in process tools. Content revenues will continue to decline for law firms. (Full Disclosure: My company Legal OnRamp works with most of the new providers and law firms described in this post.) Process work will continue to grow, but it will increasingly be managed like other process work in the enterprise, with a combination of lower-cost people, process and technology. Much of the process work has moved in-house over the last decade, but now cost pressures are forcing further change. Demand for process work will continue to outpace other areas of legal work, but the price of process work will be around $60 per hour. To use a rough analogy, law firms dont mill their own paper or generate their own electricity, even though those inputs are essential to legal work. Unless they can show that their execution of the process work is both superior (remember that process work can be measured) and competitively priced, firms will lose a lot of the process work. And in any case, its role as a profit engine will diminish. Lets look at a few data points to round out this perspective: Large law firms charge from $150/hour (paralegal) to $400/hour (mid-level associate) for process work. In-house teams can execute process work for $100-200/hour, and much less if they organize for it as e.g. Cisco (PDF) has. Non-traditional providers like Axiom charge perhaps $125-250/hr for process work, but are still often advantageous for clients, because they represent a variable, not fixed, cost, and dont require supervision. Legal process outsourcers (LPOs) can deliver process work (including onshore lawyers, technology and process) for around $60/hour with predictable quality, integrated with legal departments and with formal methods for delivering and ensuring quality. Law firms have started to create their own 'captive' LPOs, like Orrick in Wheeling, W.Va., Wilmer in Dayton, Ohio, Allen & Overy in Belfast and Baker McKenzie in Manila. For a generation, every time a legal department said it could do work more efficiently than a law firm it was able to do so. Now every time one of the new providers says it can do content or process work more efficiently than a firm, it has been able to do so. Law firms have been poorly attuned to this, thinking their competitive advantage in advocacy and counseling work gave them long-term immunity to efficiency pressures in content and process work. In fact, as we see greater focus on outcome measures, the more efficient providers will also be able to demonstrate better quality in the pieces of work that they do. Large firms will have to innovate if they want to improve profitability. Firms playing for the long-term will take a candid look at which of their work falls into each of these four categories, and adapt to a world where they wont be able to charge premium
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The $60PerHour LawyerWhy Dewey Isnt AbNormal ABA Journal

rates for content and process work, but still command a premium for advocacy and counseling. Those who don't, like Dewey, will be shocked to find themselves facing headlines questioning their financial condition.

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Paul Lippe is the CEO of the Legal OnRamp, a Silicon Valley-based initiative founded in cooperation with Cisco Systems to improve legal quality and efficiency through collaboration, automation and process re-engineering.

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Comments
1. Schills
Mar 29, 2012 2:27 AM CDT Over the next five to ten years, I believe the legal profession will witness five major developments. (In no particular order): 1. an increased number of law firm failures; 2. firms going all-in or all-out regarding process oriented legal work; 3. removal of the prohibition on fee sharing with non-attorneys 4. Big 4 accounting firms acquiring law firms and 5. dramatic reductions in associate salaries (and partner payouts?).

2. Yenrab of Syr

Mar 30, 2012 8:13 AM CDT Any lawyer can turn a profit at a $60-per-billable-hour rate. All that you need to do is to include, in the fine print of your engagement letter, that a billable hour equals ten minutes of attorney time (six billable hours to one clock hour). Cynical as that seems many lawyers already do something like that. Or, which makes more sense, the law firm quote a fixed price for a given process job, i.e., filing of LLC papers with state corporation office = $500; filing of trademark application in one international class = $650, etc. etc. (government fees extra). The client typically does not know how much time actually is consumed in these jobs, so it seems reasonable. And predictable, which is even more important to a business client. As long as you dont get carried away, and still exercise the care and diligence required, this can be much less hassle than billing by the hour.

3. AndytheLawyer

Mar 30, 2012 10:20 AM CDT At the beginning of the retrenchment I posited the spectacle of lawyers standing at freeway onramps holding up large cardboard signs: Will merge and acquire corporations for food. I no longer regard this fantasy as a joke.

4. Chuck

Mar 30, 2012 10:31 AM CDT What a thoroughly un-informative article. The master of the obvious makes the

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mundane sound complex, and probably billed time for it.

5. dmblawyer07

Mar 30, 2012 11:21 AM CDT I have 2 comments to make. 1) To big law firms: Do you even realize how badly you are getting played by your new associate hires? I know a considerable amount of attorneys at big law firms and, while they would, of course, NEVER admit this to anyone at their firm, they will readily tell trusted friends that they never had, currently do not, and will never have any interest whatsoever in working at a big law firm. The ONLY reason they accepted the big law firms associate hire offer after completion of their summer internship is because if you read any job posting for any of the inhouse counsel positions, they almost always state, ...5+ years of BIG LAW FIRM experience in XYZ field of law. I know not a single big law firm attorney who has any interest in being there. They know they simply have to put in their time at the big law firm before they can (and will) jump ship to take one of many, coveted in-house counsel positions. And NO, thinking that you (and by you I am talking about the big law firms partners) can weed out or figure out that you may be dealing with an associate who is merely using you as a brief springboard to acquiring a coveted inhouse counsel position all I can do is laugh because you cant. 2) The running joke amongst all of my friends and acquaintances goes something like thisOh yes, it takes sooo much intelligence and legal agility to click on the big law firms main frame, F: Drive, and do a quick search for the document you need, paste in into Word, and change a few details so that it is customized/tailored for your current client/assignment handed down to you by your partner/superior. Oh how terribly challenging this skill is (said with complete sarcasm) and how much I am actually learning at my big law firm associate attorney position! LOL It makes perfect sense. For a law firm that has been around for 75-100 years it is beyond unlikely that they will encounter such a completely new and foreign client problem that they have to literally start from scratch or square 1. And, duhwhy reinvent the wheel folks?! The aforementioned joke is so old and tired we dont even go there any longer because that proverbial horse has been beaten beyond death. Occasionally we will say something along these lines, Whew! Another rough day at my $125K/year job. My fingers are a bit sore from all the copying, pasting and then changing a few names, dates, numbers, and captions. I can totally see now why they only hire the top 5%ers from Tier 1 law schools! lol You can try and dress it up and sell it to me another way, but I am rather certain this (at least it should) will be difficult at best for you to do because we attorneys operate under a guiding ethical principal of not lying. ;)

6. honey the attorney

Mar 30, 2012 12:04 PM CDT How about the hours for which we cannot bill? How about the nonsense in running a practice, dealing with insane clients, dealing with judges who think a solo practitioner can be in 2 places at once, dealing with clients who dont pay bills? There are cases for which I believe I am working for less than the minimum wage!

7. Awesome Attorney
Mar 30, 2012 1:00 PM CDT Thats interesting.man. While I agree with your four identified areas of attorney work, I dont think that they are equally valuable. Insightful counseling and effective advocacy may be invaluable to certain clients. Many clients are willing to pay a bit more for process and content as long as they can get the counseling and advocacy that they need. Yes, the cost of process and content related work has decreased with technological advances. Therefore, the decreases in cost of performing work associated with these
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two categories should be passed on to the client, while the profit margin for the firm can remain the same. It is those law firms that decided to not pass the savings on to their clients, and decided to increase their profit margin in the face of technological advances, who find themselves being left in the dust.

8. Ab Straction

Mar 30, 2012 2:19 PM CDT This article fails to address reality by sticking to the abstract. If I provide counseling in a $10 billion acquisition, you are going to have the process of that deal done by $60 in house non-lawyers? I dont think so. You cant divorce counseling from process so quickly.or abstractly. Big law firms will continue to grow, and their fees will continue to grow.as long as our laws continue to expand and our financial markets continue to become more complex.

9. Ray Campbell

Mar 31, 2012 4:56 AM CDT Heres a thought to keep law firm leaders awake at night: of the four categories of work, the only category owned by lawyers as the work disaggregrates is advocacy. Non-lawyers can process work product (e.g., LPOs, E-Discovery firms), can create legal content (e.g., LPOs, LegalZoom), and can provide sophisticated strategic counseling (compliance firms, legal consultants, etc.). Whats more, the non-lawyer vendors can bring more efficient structures to bear, allowing them to underprice or out perform law firms. The big law firm largely arose during past 40 years, and it would be reckless to assume that it will remain the favored form for structuring legal work for the next 40 years.

10. John Merchant

Mar 31, 2012 8:30 PM CDT Law is sales. If you can sell then you can be a successful trial lawyer. If you cannot sell then you become a judge, prosecutor or public defender. If you are a good sales and or marketer then you can be a very successful lawyer. Is anyone here on linked in? It really is a great marketing opportunity to create partnerships. The world has changed. All of us must be flexible if we hope to succeed. I am on linked in and I have learned a lot about many things as a LI member. Good luck to all!

11. Yenrab of Syr

Apr 1, 2012 4:45 PM CDT As for Linked-In, I have been on that for a year, and I have yet to get my first bona-fide client or referral from that source. Its pretty well established in legal marketing circles that the major source of new legal work is your base of existing clients, and the second source to that are other attorneys. If you can link to attorneys you know or to your own clients, then there is a possibility of getting more referrals. Otherwise, its just a place to post your thoughts on the legal issue du jour. Linked-In is what it is, and its not Alladins Lamp.

12. Patrick Lamb

Apr 2, 2012 1:43 PM CDT Having identified myself as a disciple of Jeff Carrs 4 buckets idea long ago, it should come as no surprise that I agree wholeheartedly with Pauls basic points. A few days ago, I sat through a demonstration of the material Practical Law Company is developing for litigation. Combined with other substantive areas, it was a compelling illustration of how content is becoming google-ized, that is, having the price driven down. I have seen inside lawyers react very comfortably to form documents secured

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off the internet for significant dollar but structurally simple acquisitions. The key, it seems, is that not every deal requires the high priced lawyer and more and more clients are going through the analysis to disaggregate work and decide what lawyer provides the necessary return on investment.

13. John Merchant

Apr 2, 2012 1:59 PM CDT So far linked In has been worthless for me too. However, I believe that LI will be helpful to me because of the relationships that I am forming and my own understanding of the web. I have the same understanding of the web as I did when it first came out. Which is that the web is only a sales and marketing platform. It is a 24/7 marketing piece that can also be adapted to transact business for you if you sell a product such as a self help book. I am on linked in and would love to connect with anyone interested in connecting with me. Check out my profile and send me an invite.

14. John Merchant

Apr 2, 2012 3:47 PM CDT If you think like a salesman you will be more successful then if you think like a craftsman. The world has changed for everyone. Now you must be competitive, deliver overwhelming value and earn your business.

15. James Strock

Apr 3, 2012 10:11 AM CDT Brilliant article from Paul Lippe. The Lippe-Carr analytical model seems to be a very apt one. As disintermediation hits the professions and government, there is going to be a tremendous amount of friction and public discussion. The legal profession will certainly have many people using their advocacy skills on behalf of the status quo. One wonders if there may be an additional area of value that might be considered by Mr. Lippe: certification. In some situations there may be independent value from the mere fact that a certain firm, with a strong reputation, has put their name on the line for a legal interpretation or a business proposition. In some cases the certification value of a name individual or firm can be significant. Nonetheless, that would not be a firewall against the increasing competition in process and content. Also, as law and business continue to intermingle, is it possible that innovative consumers of legal services, such as Cisco, will create value by selling or licensing their approaches to legal management? Perhaps they already are. Perhaps Legal OnRamp is curating best practices. More about this would be very interesting. Many thanks Mr. Lippe for a valuable article!

16. reader

Apr 3, 2012 10:56 PM CDT lawyers pay used to be about the same as teachers, or sometimes less.

17. Liz

Apr 4, 2012 4:49 PM CDT Schills - Your opinion sounds about right. Also, I just wanted to say that somehow I have mixed you up on other threads with a commenter named Schilli who says things that are the exact opposite of your comments. This board is so weird sometimes. I think McLeod has to be getting paid and I love the

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way threads fill up with his posts full of already-repeatedly-corrected-misinformation right at the end of every comment thread, before commenting expires. And its funny the way threads critical of the ABA disappear from Most Read and Most Commented really quickly, even when they have 100s of comments and the remaining posts have, like here, four. Its such terrible PR - from a board thats always telling lawyers to buy more social media and PR help, via thinly disguised ads like this article.

18. Schills

Apr 4, 2012 5:05 PM CDT LizSame commenter. I was using my iPhone to resond to something McLeod wrote and it came out Schilli. I think you have gotten stuck on a micro issue under discussion in the other thread, which had nothing to do with whether or not recent grads (past eight years) are getting hosed (they are). This is my macro view of what is happening in the profession. There is significant opportunity for success, professionally and monetarily, for those who develop process skills. There will also be greater stability in terms of career opportunities and progression once everything shakes out. The next ten years will not be smooth sailing by any measure. I was wondering why the other thread disappeared as well. I have to follow it through email updates. Rather odd. Whats up ABA?

19. RT

Apr 5, 2012 4:28 PM CDT The whole mess makes me think of one expression. BARF!!!!

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