LegalZoom Buys First Law Firm in England. Law Society Throws in the Towel

ThinkstockPhotos-179520805Calling its move "a step towards building a ‘next-generation’ law firm," the legal technology company LegalZoom has bought its first UK law firm, a 200-year-old conveyancing firm in Wakefield, West Yorkshire. The Law Society Gazette has the story.  LegalZoom was approved for an ABS (alternative business structure) license earlier this year. LegalZoom was founded in the U.S., but in 2014 the European private capital firm Permira became LegalZoom's largest shareholder.

Meanwhile, in other legal tech start-up and conveyancing news, the Law Society of England and Wales has scrapped a multi-million dollar online conveyancing portal intended to "revolutionize" home buying.

Are Traditional Law Firms Unsustainable? A Debate.

ThinkstockPhotos-142079574As many law firms struggle to recover from the near-death experience of the Great Recession, there's a bracing debate going on in the legal futures community about whether the traditional law firm economic model (partners, associates, equity, etc.) will lead back to prosperity through standard growth strategies like mergers and lateral hires or whether a total overhaul is required via a new profitability analysis. (A third doomsday view says it doesn't much matter as most legal services will be delivered via artificial intelligence anyway. To book your trip down that rabbit hole, start here.)

As for the growth strategy versus complete overhaul debate, you won't do any better than to read  "Growth won't solve your firm's problems" from Am Law Daily (re. req.), which features the dueling prescriptions of Harvard Business School's Felix Oberholzer-Gee and Bill Henderson from Indiana University's Maurer School of Law. Henderson thinks "off-the-shelf" corporate strategies are ill-suited to the law firm model:

The law firm market is different because of the ethics rules (around) non-compete agreements and non-lawyer investment and the cultural norms that have grown up around partner-associate models. In particular, those cultural norms require growth in order to maintain comfort and satisfaction inside of the firm,” he said.  For instance, Henderson said, associates work hard, long hours in the belief that doing so may earn them equity partnership while clients mainly pay for the expertise of the experienced partners. Without equity partnership as a motivator, firms would stagnate from lack of new associates, their energy and their ideas and eventually wither from lack of successors. In the long run, Henderson said, the legal industry probably has to move away from the partnership model, as so many professional advisory services like tax and accounting firms have done. But in the meantime, law firms remain dependent on growth, he said.

Overholzer's response? "If the firm grows larger in a less and less profitable fashion, the incentives to become partner get weaker. Why work hard to become partner in a firm that is large but barely profitable?”
George Beaton posts on the Am Law piece here.

The Revealing Parentage of Europe's Most Developed Online Dispute Resolution Court System

ThinkstockPhotos-479710499According to Legal Futures, The Netherlands is leading the way in Europe in the practical application of online dispute resolution. The Rechtwijzer 2.0 describes itself as “the first ODR platform for difficult problems such as divorce and separation, landlord-tenant disputes and employment disputes.” Its development says all you need to know about whether, how, and how fast the staid and geography-bound global legal system is changing. The platform was designed and built by Modria, a California and India-based company founded in 2011 for the resolution of disputes on eBay and PayPal. Its founders are Colin Rule and Chittu Nagarajan. Rule, a non-lawyer, journeyed from a Peace Corps position in Eritrea in 1989 through the Harvard Kennedy School of Government into the stratosphere of innovative mediation and dispute resolution. Nagarajan, an English-trained lawyer, converted a part time position at PayPal to establish a community court into a full time position, leading to the co-founding of Modria itself.

Think that the Atlantic and Pacific oceans and our balkanized, state-based judicial system will keep these transformative innovations at bay in our world? Think again. Modria's software is in use in Ohio to resolve disputes over tax assessments and keep them out of court. A New York-based arbitration association is using it to settle medical claims arising from certain types of car crashes.

And what about Michigan? Court Innovations, a Michigan company developed out of the University of Michigan Law School, uses similar technology to resolve traffic disputes through an online option already adopted by six district courts in Michigan. 

Despite Best Intentions, Legal Profession Diversity Stagnant in England

ThinkstockPhotos-486126081As in the U.S., the British have recognized racial, ethnic, and gender disparities in the legal profession and have pursued strategies for greater diversity and upward mobility in the bar and bench. According to a report out today, the strategies aren't working. Elite private school graduates, where minority populations are underrepresented, still dominate. Today's report notes that the proportion of top judges and prosecutors from the elite schools has decreased only slightly since the 1980s. Three-quarters of top judges and 71% of top QCs attended private schools.  (This 2014 report in the Guardian gives a more comprehensive picture of elite school dominance in UK society overall.)

Notably, stagnant mobility in the U.K. legal profession does not appear to be the result of active resistance to the proposition that more diversity is beneficial. According to the survey, 52% of the "senior figures in the legal industry" polled said that improving social mobility in the legal profession would be beneficial to their firm.  71% agreed that improved social mobility would benefit society as a whole. But the reasons given for not hiring more candidates from "disadvantaged" backgrounds suggest that a change is not coming soon. Respondents pointed to "presentation at interview" as the main barrier to getting law firm training contracts, followed by lack of pre-university educational attainment and lack of understanding of the profession and business.

A host of neuroscience studies explain how the same leaders who openly embrace the value of diversity make decisions based on implicit bias that undermine their best intentions. Take this test to find out how this science applies to your own brain.

Surprise? Accountants Eating Into Lawyers' Work in UK After Reforms

ThinkstockPhotos-451334397According to this story from Legal Futures, the ability of non-lawyers to invest in UK law firms is resulting in “intense competition” for mid-tier law firms from Big Four accounting firms, all of which are licensed under the reforms of the Legal Services Act of 2007 as alternative business service (ABS) providers. The story says the accounting firms are “quietly” taking the more commoditised work away from mid-tier firms, and, according to the head of legal services at the Royal Bank of Scotland, are about to move up the law firm food chain. He summarizes:

The upshot of all of this upheaval is that legal work has become disaggregated, with significantly bolstered in-house teams acting as de facto project managers to a host of legal and resource providers, with the traditional law firm just one constituent part – albeit, in many cases, the one doing the most complex, more profitable work.

Although in the U.S. growing national businesses such as LegalZoom provide a variety of legal services outside the traditional law firm legal service delivery model that is constrained by the rule of professional conduct banning non-lawyer ownership, no jurisdiction in the U.S. has a non-lawyer ownership ABS model like the UK's.

Sorry, Even the Best Legal Future Will Not Be a Safe Place

ThinkstockPhotos-478507468If you're thinking that the inexorable movement of information management (e.g. lawyer work) into a cloud-based delivery system means that technologists will somehow find a way to solve the problems of hacking, cybertheft, and viruses, think again. Human nature in the future will still be human nature, even if encroached upon by artificial intelligence.

So, staying on top of your professional obligation to protect your own and your clients' information in an environment and with tools foreign to your own expertise will be an ongoing challenge. For that reason, several other jurisdictions have recently amended their rules of professional conduct to add an explicit rule requiring lawyers to maintain appropriate tech competence. The trick is knowing what constitutes a "reasonable effort" to protect confidential information in the face of constantly evolving security threats and the tech tools to counteract them. For example, do you have the latest state-of-the-art plug-in free information rights management (IRM)? Do you need it? Just asking.

The State Bar's 21st Century Practice Task Force will be considering the MRPC rule change proposal as part of its broader charge; your input on the details of any change in the rules is welcome.

Meanwhile, the threat today is real. It's almost become a cliche -- there are two kinds of law firms: those who already know they've been hacked, and those who don't know they've already been hacked. Here are two timely pieces: How to Encrypt Data on Your Mac in a Few Simple Steps, from Law Technology Today, and a primer on cyber insurance from the Minnesota State Bar Association.

When Watson Eats Your Lunch: The Impact of Artificial Intelligence in Lawyering

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Watson is such a friendly name for an artificial brain that outcompetes our own slow, distracted, and haphazardly stocked neuronal skull factories. How could this cyber-sidekick, named for a second fiddle intelligence, come to undermine our professional authority?

For a long time, our best sci-fi writers and the cognoscenti of artificial intelligence have been telling us that it's not a question of if but when machines will take over even the most sophisticated and nuanced intellectual work. As lawyers we've comforted ourselves that even if that's true, it will happen tomorrow, not today. Surely the uniquely human empathic capacity that bring to the hard mental work of lawyering will make what we do forever unsuited to takeover by artificial intelligence.

The evidence is mounting,  however,  that when is now and a profound transformation in the delivery of legal services is already well underway. Ars Technica told us last week that Law firm bosses envision Watson-type computers replacing young lawyers. Latham & Watkins told The American Lawyer it is "test-driving new IBM Watson-based applications, including cognitive and predictive coding technologies." Artificial Intelligence in Law – The State of Play in 2015? neatly describes the current landscape. In legal research,  the hardest work is "practical implementation against good data at scale;" legal research innovators like Fastcase and RavelLaw have already done that work, and are adding visualization to enhance its usefulness. Many vendors are using procedural rules and inferencing to generate legal documents. And e-discovery has taken off with the implementation of predictive coding (technology-assisted review or TAR) that processes huge data sets using natural language and machine learning techniques. 

But from England last week yet another post on the subject, Come the AI legal armageddon, what's in it for me? that includes the reassuring thought from a young London lawyer that AI may actually bring some joy and comfort to lawyering:

As a fixed-fee direct access barrister, I often end up spending far more time on a project than I can bill to my client – technology which increases my accuracy and decreases my hours is certainly something I’m keen to explore. That said, the main focus of my practice tends to involve translating human interactions into legal terms which are then assessed by human judges and tribunals. Translating into and out of “human” is something technology has yet to learn to do. I’ve no doubt it can learn: by analogy, it used to be said that chess grand masters could never be beaten by machines – until they were. I’m not sure of the degree to which machines should replace human decision making: I’m uncomfortable about the risks of King Solomon-style “justice” instead of living, breathing decision-makers willing to mitigate rough justice with “mercy” and “equity.” Rather, I see technology as an important tool to increase accuracy, decrease time spent on routine tasks, giving me the freedom to efficiently focus on the aspects of a case which genuinely require a living expert in law and 'human'.

With every passing day there are more and more AI tools available to us. Will they nourish us, or consume us? The choice is still ours.

Monopoly: How The Game Has Changed for Lawyers

monopoly boardRichard and David Susskind's new book, The Future of the Professions: How Technology Will Transform the Work of Human Experts, posits that the application of artificial intelligence to services like law, medicine, and even spiritual guidance, will ultimately replace most of the traditional work of the professionals who have long held a monopoly on these services. They argue that a traditional "grand bargain" struck by society with the professions will wash away in the face of the superior product that artificial intelligence will offer. The "grand bargain" they describe is this:

In acknowledgement of and in return for their expertise, experience, and judgement, which they are expected to apply in delivering affordable, accessible, up-to-date, reassuring, and reliable services, and on the understanding that they will curate and update their knowledge and methods, train their members, set and enforce standards for the quality of their work, and that they will only admit appropriately qualified individuals into their ranks, and that they will always act honestly, in good faith, putting the interests of clients ahead of their own, we (society) place our trust in the professions in granting them exclusivity over a wide range of socially significant services and activities, by paying them a fair wage, by conferring upon them independence, autonomy, rights of self-determination, and by according them respect and status.

For lawyers, the bargain has been fraying around the edges for decades. It's not because our commitment to the standards of the profession has changed. What's changed is that broader literacy has opened up access to legal knowledge, and that access is now vastly expanded and accelerated by the Internet. Case in point: just last week Harvard Law School announced its “Free the Law” Project with Ravel Law to digitize all U.S. case law and provide free access.

While the Grand Bargain was fully in effect lawyers didn't have much incentive to market the value of their training in applying knowledge of the law to the needs of potential clients or to compete to deliver legal services economically. The game has changed. The ethical rules still apply, but strategies must adjust. Hence the astonishing proliferation of new marketing tools and advice, and new business models. Lawyers need to make sense of the new landscape to continue to be relevant. And bar associations must help their members negotiate the change to continue to be relevant. The State Bar of Michigan accepts the challenge

The 20% to 5% Generational Mismatch Problem for Law Firms

According to Beaton Capitol, it's time for law firms to start hiring and paying attention to younger associates:

Leadership in AmLaw100 firms is concentrated in the hands of older baby-boomers and members of the Silent Generation, born before the end of World War II. But while there is clear evidence of generational change occurring in the leadership of their clients, the same is not as clear in firms.This slowness to respond to generational change on the part of law firms is creating risks of cultural and generational mismatches. ...  [A]lmost 20 percent of Fortune 100 and 30 percent of Nasdaq general counsel are Gen X members compared with fewer than 5 percent of AmLaw leaders. This generational mismatch poses dangers for client relationship management. And also for partner retention if older partners hold on too long and don’t share opportunities for growth with their younger peers.