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Who Will Disrupt The Disruptors? Part 2

(Note: this is Part 2 of a series regarding Stanford CodeX Future Law 2016 Conference. Part 1 is here.)

But who will hella disrupt??

But who will hella disrupt?!?

We were sitting around, chatting late into the evening when sensory deprivation restaurants came up. I had heard of the concept, but never been to one. Josh Lenon from Clio chimed in that he had been to one in Toronto that included no lights, and required people to put in earplugs. No sight, no sound, just taste. Someone else chimed in that they had heard of another restaurant that did the same, except it also required everyone to be nude.

“I don’t think I want to be nekkid in the dark with a bunch of other people eating food,” I replied.

Which is how I found myself explaining the difference between ‘naked’ and ‘nekkid’ this past week. But that’s jumping ahead again.

If I had to guess, neither was voluntary blind/deaf/nude dining. But you never know.

The image above was one of the initial slides from An Introduction to the UK’s Alternative Business Structures by Eddie Hartman, Co-founder and Chief Product Officer of LegalZoom. Everything on display were, dare I say it, disruptive inventions and technologies of the past 200 years. Lawyers played no part in these advances. The point being:

My observation was that Hartman was displaying his lawyer roots by referring to regular people as non-lawyers. Which apparently isn’t very sensitive to the feelings of non-lawyers. Dammit, I did it too.

Hartman went on to give a brief history of “alternative business structures” and law firms.

The Future Of Law Firms?

Alternative business structures (ABS) are on many people’s minds because of LegalZoom’s acquisition of a 200 year old law firm in the UK. The UK has allowed ABSs since 2012, but LegalZoom is the first major American player to move into the market. The UK decided to deregulate after a period of review resulting in the now infamous Clementi Report (PDF):

In its report published in July 2003 entitled ‘Competition and regulation in the legal services market’ the Department for Constitutional Affairs concluded that the current regulatory framework was “outdated, inflexible, over-complex and insufficiently accountable or transparent.” Nothing that I learnt during the 18 month period of my Review has caused me to doubt the broad validity of the Government’s conclusion. The current system is flawed.

The Clementi report went on to recommend a number of changes, including the creation of ABSs, which were ultimately codified in the Legal Services Act 2007 (PDF). It was determined that the guild-like structure of lawyers prevented innovation, did not provide equal access to the law, and was terribly opaque and expensive. Allowing for ABS, and non-lawyer equity partnership, would hopefully drive up innovation and costs down. That’s the concept at least. So what does UK deregulation have to do with the USA?

200+ years ago after we kicked the Brits out, we decided to drastically revamp our system of government. We implemented all sorts of new ideas and concepts. One of the exceptions was the Common Law system. “It ain’t broke, don’t fix it.” So when the mother country decides to upend its regulatory system, American lawyers take notice. Especially given that deregulation comes up every few years at the ABA.

LegalZoom purchased, Beaumont Legal, one of the largest conveyancers in the UK. They’re a law firm that specialises in the legal aspects of buying and selling real property. Which actually sounds like a specific area of legal practice that could be improved and optimized with technology, lean/six sigma methodology, and adoption of best practices. In his talk, Hartman said that by allowing non-laywers to participate on equal footing with lawyers within a law firm would create a better solution for clients.

It sounds like a nice idea, but I’m not sure why “non-lawyers” need a seat at the table to achieve those goals. I’m not opposed to the idea, but question its necessity. Why can’t law firms just hire people to do those jobs? In the first post in this series, I mentioned that the legal profession has been slow to adopt innovation when it comes to connecting clients and lawyers, enabling services like Avvo, RocketLawyer, and LegalZoom to grow and thrive, albeit with faltering steps,

Right on cue, Denton’s, the largest law firm in the world, announced in a press release its NextLaw Global Referral Network to help connect clients and screened and approved lawyers – at no cost.

“Firms that are members of Nextlaw Global Referral Network are more likely to receive reciprocal referrals than from any other referral network,” CEO Modisett explained, “because the technology allows all members to easily and transparently keep track of referrals and uses an algorithm that promotes reciprocal repeat referrals.”

While Nextlaw Global Referral Network is open to any law firm that meets its quality standards, it focuses its membership primarily on small to mid-sized law firms, and firms of any size that are in one location, country or region, or that specialize in one practice area or industry sector. In other words, Nextlaw Global Referral Network focuses on approximately 90 percent of the legal market.

Which sounds like a forward-thinking means of attempting to connect clients and lawyers. What exactly is preventing lawyers from hiring marketers, operations, logistics, IT people, etc. and attempting to innovate how they deliver legal services going forward?

If I had to guess, the answer has to do with capital and scale. By allowing non-lawyer investment, adopting an ABS, a law firm could enjoy far greater access to funding. And even Denton’s, with its size and scope, is dwarfed by non-legal businesses. Scale could help drive costs down.

It’s A Comin’

Regardless, at the end of the day, what matters is what’s best for clients, and by extension, society as a whole? As Bruce MacEwen, President of Adam Smith, Esq., noted in his remarks on the UK’s Legal Services Act:

The horrified opposition cited fears of the invasion of the profession by predatory investors prepared to sacrifice clients on the altar of profits. Adam Smith – or for that matter Peter Drucker – might be skeptical of the long-run viability of a business premised on putting its clients last, but be that as it may, I’m reminded of the remark by American Lawyer editor-in-chief Aric Press some years ago that the magazine’s creation of the notorious profits-per-partner (PPP) scorecard for law firms “did not introduce the profession to greed.”

NALP-Distribution Curve 2014

NALP Salary Distribution Curve

By taking an oath, lawyers do not automatically become paragons of virtue. It can easily be argued that lawyers haven’t done a good job of providing low costs legal services to the public and instead focused on increasing PPP. Yet many lawyers regularly provide pro bono services in addition to their regular practice. And when swearing into the bar, lawyers don’t take a vow of poverty. Getting a JD these days is a six figure affair. To enjoy a comfortable standard of living and support a family, lawyers must charge high rates for the services they provide. And lest we forget, only a small percentage of lawyers are actually earning the ‘big bucks,’ most lawyers make solid middle class salaries.

So what is the future of law firms in the USA? Who knows. But it’s not going to remain as it is today. Whether it be LegalZoom or some other entity, inroads are going to be made towards non-lawyer ownership of law firms. It’s not a matter of if, but when.

Speaking of displacing firmly entrenched structures, in the next part series we’ll shift to changes in legal search, starting with Casetext.

Continue to Part 3 here.

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