We had our recent “Alternative Legal Business Models” event in Palo Alto hosted by our friends at Dentons. As always, the event sparked lively conversation on the topic of the current legal models, and the way that is is, could be, and should be changed for its own good and the good of those it is supposed to serve.
There is a lot of talk about the lack of growth in law firms, and yet there is still legal work going on and money being spent on those services. So where is the money going , and who is doing the work? Recent years have seen the rise of alternative legal service providers that can offer more flexible and often more affordable services in not only the B2C market, but B2B as well. For the buyer, these providers can offer specialization and expertise that might not otherwise be readily available to them. And for firms, this particular model allows them to expand the services they provide to their client and to meet the rising demand and need for technology in law. And more than saving money, firms are looking for outside firms who can offer their expertise on being efficient with their processes.
Beyond just hiring outside companies to handle some of their legal work, law firms are increasingly looking at changing the way they do business to meet the demands of the changing legal marketplace. The backbone of the law firm as it currently exists is the billable hour, but more and more firms are looking into doing away with it in favor of things like the flat fee model. A set price offers clients cost certainty and should encourage both efficiency and creativity in how they sell themselves and their value to clients. But a common misconception with the flat fee model is that it negates the need for measuring and tracking an attorney’s hours and output. Attorneys still need to track their hours and measure the time put in to each matter in order to make sure their pricing is working, and to understand how productive both they and the firm are. And there are instances even in a flat fee structure where the client may want to see an accounting of the hours put in.
Alternative billing models will provide a challenge to law firms as to how to properly compensate their attorneys for the work they do. Without the hour as a measure of value, firms will have to look to other metrics like customer satisfaction and efficiency to determine pay structure. And while these alternative models provide benefits to clients, not all see it that way. For some, their customer satisfaction can be aided by the fact that they know what their legal costs are going to be, or know that they can reach out for help without incurring more cost if they are paying at a monthly or quarterly rate. But others are used to the older way of doing things and are uncomfortable moving away from the billable hour.
One holdover practice that has come into question is law firm ownership by lawyers., and the prohibition of non-lawyer ownership. Lawyers may be proficient at the practice of law, but they aren’t business people, but law firms are businesses. And most firms have non-lawyer professionals working for them that can’t be partners. Beyond losing out on the different perspectives and different expertise that the non-layer can provide, law firms are also failing to adequately compensate their top talent as they would their attorneys.
As the issue of non-lawyer ownership comes up frequently, so do the raft of regulatory and structural issues that prevent non-lawyer ownership or investment or could hinder its adoption in the future.Many point to issues of conflict of interest are raised, but in some ways conflicts exist inherently in law firms that are built around the billable hour rather than customer satisfaction. And many partners aren’t incentivized to be forward thinking about this issues or others because they are closer to cashing out and riding off into retirement.
So what can change the current legal model? Technology can be an agent of change in law, and can help grant access to justice to people who previously didn’t have it. But how can more technology be introduced to aid the practice of law? In some respects, it isn’t even specifically about the technology, although the right technology can help improve the practice of law and lawyers specifically. Rather it is about getting lawyers to be willing to change how they do things, and about changing the culture of law firms to think differently about how things have always been done. Law firms at their best are focused on how to solve real problems for their clients while providing value, but the current structure of the entire legal model can get in the way of that. But if lawyers and firms are able to change, and if legal tech can help create simple and efficient solutions for lawyers to use, the market can be more accessible and more efficient for clients.
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