Veta T. Richardson is president and CEO of the Association of Corporate Counsel (ACC), the largest global bar association serving in-house counsel. Veta’s priority as CEO involves increasing ACC’s global footprint and charting the organization through a strategic plan geared to address the unique needs and challenges of corporate lawyers. As a result, general counsel and governance professionals look to the ACC for strategy, global legal trend analysis, and research related to corporate best practices, governance policies, advocacy, and boardroom trends. Veta was previously executive director of the Minority Corporate Counsel Association (MCCA). She started her legal career as in-house counsel at Sunoco, Inc., and received a B.S. and J.D. from the University of Maryland.

   Mary Blatch is Data Privacy and Regulatory Counsel at CFA Institute. She was the Association of Corporate Counsel’s senior director of advocacy. She directed ACC’s regulatory, legislative, and judicial advocacy efforts on attorney-client privilege, attorney ethics and mobility, corporate compliance, and other issues of importance to in-house counsel. 

   Prior to joining ACC, Mary was a senior manager at Deloitte, working on regulatory advocacy and compliance issues for the tax practice. Before joining Deloitte, she was a litigation associate at McKee Nelson LLP and Hogan & Hartson LLP (now Hogan Lovells LLP). She also served as a federal judicial clerk in the Eastern District of Virginia.      Mary holds a J.D. from the Columbus School of Law at The Catholic University of America and a B.A. from Spelman College.

The only thing we have is one another. The only competitive advantage we have is the culture and values of the company. Anyone can open up a coffee store. We have no technology, we have no patent. All we have is the relationship around the values of the company and what we bring to the customer every day. And we all have to own it.The only thing we have is one another. The only competitive advantage we have is the culture and values of the company. Anyone can open up a coffee store. We have no technology, we have no patent. All we have is the relationship around the values of the company and what we bring to the customer every day. And we all have to own it.

– Howard Schultz, founding CEO, Starbucks

Introduction

Corporate culture is widely acknowledged as adding value to companies, both in terms of improving financial performance and in creating an atmosphere that encourages ethical behavior. Evaluating and setting corporate culture is an important responsibility for boards and executive management, and because the board chooses the chief executive, ultimately culture emanates from the boardroom.[1] Corporate culture is not a topic typically linked to a company’s general counsel and legal department, but the failure to draw that link may prove shortsighted on the part of the board. Given the importance of the general counsel in matters of ethics, compliance, corporate governance, and risk and reputation management, the general counsel should be a key ally and partner in establishing a corporate culture that supports corporate performance without compromising ethical behavior, and legal and regulatory compliance. This thought leadership paper explores how the general counsel (a/k/a chief legal officer) can be leveraged as a corporate culture influencer, and how her standing and stature vis-à-vis the CEO and other C-suite executives should be a topic of board inquiry.

When the general counsel has a seat at the chief executive’s leadership table, it sends a signal to the company’s stakeholders (internal and external) that ethics, compliance, and other legal risk considerations are a top priority of the company. A direct reporting line between the chief legal officer and chief executive officer is important to corporate culture as a reflection of the “tone at the top,” and through which the CEO sends a powerful message that business decisions are made with appropriate consideration of the ethical, legal, and reputational impacts.

There are many ways in which the board can send signals. The most powerful signals come from behaviour, language, and actions of executive directors, particularly the CEO. If the CEO is sending signals that business is a game where fouling is OK if the referee does not see you (think football), or that cutting corners is acceptable to deliver results, no amount of ‘good tone’ from the rest of the board will have much impact.[2]

As the board meets its fiduciary duty to keep a critical eye on the company’s culture, part of that examination must include how the general counsel functions within the company. Through talking with well-respected general counsel and our own research on the expectations of corporate directors and chief executives regarding the chief legal officer, the Association of Corporate Counsel (ACC) has developed five indicators that all directors, particularly non-executive directors, should look to in order to assess whether a company’s general counsel is well positioned to have a positive influence on corporate culture.

Regulatory and Business Demands Expand the Need for General Counsel Influence

In 1991, the U.S. government issued the United States Sentencing Guidelines for Organizations, which incentivized the creation of corporate compliance programs meant to prevent and detect violations of the law. This began a more systematic approach by companies to address regulatory compliance as well as ethics within their organizations. Ultimate responsibility for a company’s regulatory compliance usually rests with its general counsel, and as regulatory scrutiny has increased, so has companies’ need for regulatory compliance advice.

Although some companies have compliance functions that are separate from the legal department, many of the activities mandated by a compliance program require legal analysis, and any effective compliance program requires coordination with the general counsel.

The emphasis on the general counsel’s role in ethics and compliance has made the position grow in professional stature and influence. Regulators recognize that in-house counsel have an essential role in promoting compliance and ethics in their companies. They have even included in-house counsel in regulatory regimes meant to deter corporate wrongdoing, like the Sarbanes-Oxley Act of 2002. Both directors and general counsel are acutely aware of the importance of the general counsel role in promoting ethics and compliance within the company. In ACC’s Skills for the 21st Century General Counsel survey, 54 percent of directors ranked “ensuring a company’s compliance with relevant regulations” as one of the top three ways general counsel provide value to the company. ACC’s 2017 Chief Legal Officers Survey found that 74 percent of general counsel rated ethics and compliance as “extremely” or “very” important over the next 12 months — the highest ranked concern in the survey. This emphasis on the general counsel’s role in ethics and compliance created the need for general counsel to exert greater influence within their companies in order to fulfill the compliance mandate from regulators and the board.

Even outside of compliance concerns, legal and regulatory issues are increasingly central to the implementation of sophisticated business strategies. For example, protecting innovation requires understanding intellectual property law; overseas expansion requires knowing the employment laws of other countries; and advances in data analytics require knowledge of data privacy laws. Where outside counsel used to be the primary legal advisers to the CEO, general counsel have come to fill that role in every corporation, particularly the large multinational and/or publicly held company. As legal departments have evolved and attracted top-level talent below the general counsel, the general counsel has carved out more time to consider strategic business issues and contribute to setting strategies. This development is a positive contribution to corporate culture.

Tone from the top is not a motivational crusade. Most changes happen where there are doubts about whether the tone is the right one. Ultimately chairmen should change the CEO if the values and ethics aren’t present to the right extent.[3]

When a general counsel is part of the executive leadership that makes strategic business and operational decisions, those decisions are informed by not only a legal perspective, but also by broad ethical and public policy considerations. The general counsel is a diverse and unique voice at the executive table. ACC’s Skills for the 21st Century General Counsel report suggests that boards are just beginning to perceive the value of the general counsel as a strategic advisor. Twenty-seven percent of the directors surveyed ranked the general counsel’s “input into strategic business decisions” as a top-three value driver currently, with 37 percent anticipating it would be a top-three value driver in the future.

A Strong General Counsel Supports a Strong Corporate Culture

Courage is the most important attribute of a lawyer. It is more important than competence or vision. It can never be an elective in any law school. It can never be de-limited, dated or outworn . . .

– Robert F. Kennedy, Speech at University of San Francisco Law School,

San Francisco, Sept. 29, 1962

It is curious that there has not been greater discussion of the general counsel’s role in influencing or supporting strong corporate cultures, especially with ethics and compliance being the primary drivers of corporate culture efforts. Of the 12 companies that have made Ethisphere’s list of the “World’s Most Ethical Companies” each year it has been published,[4] ACC found that the majority of them have general counsel who are well-positioned to influence corporate culture. For example, in 91 percent of those companies, general counsel report to the CEO. In 83 percent, general counsel serve as the corporate secretary, indicating direct access to the board, and in 83 percent of those companies, general counsel are also responsible for compliance.

The preventative role of the general counsel and corporate legal department is key to their contribution to regulatory compliance and corporate culture. When the general counsel is included in discussions of business strategies before they are implemented, she can help the company assess and avoid legal and business risks.

As preventing violations of laws and regulations is preferable to mere detection of violations when they occur, the general counsel has become instrumental in improving a company’s overall compliance, as well as protecting its reputation.

Much of the general counsel’s value when it comes to supporting a strong corporate culture stems from the fact that the legal department’s metric for success is not the company’s quarterly performance. The general counsel promotes ethical behavior and integrity in corporate decisions by taking the view that short-term gain is not worth compromising long-term sustainability. This perspective can be important to informing what a company considers ethical. Experts consider corporate culture to be the intangible framework meant to guide individual and organizational behavior when there are gray areas.

With her legal background, “gray area” is a space that the general counsel regularly occupies as most laws, cases, or regulations fail to offer a “bright line” rule.

[I]t is increasingly important that the general counsel have the skills to navigate beyond just the legal issues — to have many more of the softer skills necessary to negotiate matters where the rules are not always clear, where the outcomes are not always neat, and where the impact on the overall organization is widespread and profound.

– A general counsel who also serves as a board member,

from the Skills for the 21st Century General Counsel report

A company that leverages its general counsel and legal department to fill in those gray areas (including outside the legal context) in a manner that promotes ethical practices and compliance with the law helps solidify an overall corporate culture that emphasizes those characteristics and values. On the other hand, when the general counsel is not empowered in such a manner, business units may fill in those gray areas in a way that maximizes short-term returns over the longer-term interests of the company, and compromises the ethical culture the company wishes to build.

A strong general counsel can establish the practices that reinforce a corporate culture that values ethics and integrity. But this value can only occur if the general counsel is properly situated within the company, and the legal department has effective interactions with the company’s business units. A management team that marginalizes the general counsel and the legal department not only loses out on this risk-management perspective, but also sends a company-wide message that legal risk, ethics, and compliance are not taken seriously.

Send lawyers, guns and money, the shit has hit the fan.

– Warren Zevon,

“Lawyers, Guns and Money” (song) (1978)

The distinction is best explained as companies with a less solid corporate ethical culture that would generally view the general counsel and members of the legal department as the group to call to “clean up” after a legal, regulatory, or compliance mess, or when a transaction goes awry. Whereas, companies with a stronger “tone at the top” corporate ethical culture look to the chief legal officer and her team as allies whom, if proactive and involved at the onset, can help prevent a mess from happening.

Five Indicators of General Counsel Influence on Corporate Culture

Accepting the proposition that a strong general counsel will have a positive effect on corporate culture, we suggest five indicators a board might consider when evaluating whether the general counsel has sufficient influence on corporate culture, and whether corporate culture itself is indeed healthy.

#1 – The general counsel reports directly to the chief executive officer and is considered part of the executive management team

Before the rise of the general counsel and the corporate legal department, general counsel were not considered C-level executives. They often reported to the chief financial officer (CFO), chief administrative officer (CAO), or another senior executive. As regulatory and business demands spurred the changes in the legal department detailed above, the role and relative authority of the general counsel increased. Per the ACC Chief Legal Officers 2017 Survey, 72 percent of respondents report directly to the CEO.

While this number has increased – only 64 percent of general counsel reported to the CEO in ACC’s 2004 Chief Legal Officers Survey — the movement of less than 10 percentage points is a concern given how much more global and complex the challenges businesses face have become.

The reporting structure of the general counsel position is an important indicator of the influence that the legal department has in the company. The ACC Chief Legal Officers 2017 Survey showed that general counsel who report to the CEO were much more likely to say that the executive team “almost always” seeks their input on business decisions.

General counsel who report to the CEO were also significantly more likely to report they “almost always” contribute to strategic planning efforts compared with those who don’t. When the general counsel is consulted about business decisions and strategic planning efforts, there is a greater likelihood that those decisions and plans will take into account legal and regulatory risks. Pre-decision consultation helps the legal department fulfill its preventative role within the company.

In addition to providing the legal department with requisite influence, having the general counsel report to the CEO is an important part of setting the “tone at the top.” When legal has a seat at the table, it sends a message to the rest of the company that compliance with laws and regulations is a company priority. It also says something about the CEO: that input from legal is valued, and that the CEO’s vision for the company prioritizes ethics and integrity.

#2 – The general counsel has regular contact with the board of directors

A board of directors that does not have a consistent relationship with the company’s general counsel should be a cultural red flag and prompt further board inquiry. While the relationship between the general counsel and the board can take various forms, it is important that the relationship at least be consistent. After all, the board is the company’s fiduciary representative, and the company is the general counsel’s client (not members of the executive management team). A relationship between the general counsel and the board of directors enables the board to set the right tone for the company’s legal, ethical, and compliance culture, and also helps maintain the independence of the legal function.

Our data indicate that there is room for improvement in the relationship between boards and general counsel. In the ACC Chief Legal Officers 2017 Survey, 18 percent of respondents reported having a “direct” reporting relationship with the board of directors, and 67 percent reported that they “almost always” attend board meetings. However, a full 21 percent report that they seldom or never attend board meetings. While not every company requires a direct reporting structure between the general counsel and the board, at a minimum, the general counsel must have a mechanism to bring controversial issues to the board — without prior CEO consent.

In addition to raising issues directly with the board, an influential general counsel can be an ally in the board’s efforts to set the tone for the company’s compliance culture. The ACC survey shows that similar to the effect of direct CEO reporting by the general counsel, a board relationship imbues the general counsel with more influence over business decisions. General counsel who had a reporting relationship to the board were significantly more likely to be asked for input on business decisions; they were also significantly more likely to contribute to the company’s strategic planning.

A relationship with the board also helps preserve the independence of the legal department. Much has been made of the independence, or lack thereof, of in-house counsel, because they depend on management for employment and compensation decisions. The board can serve as an important check on the potential conflict the general counsel might feel between her service to executive management, and her duty to the company as a client. Moreover, if a general counsel needs to report concerns to the board, finding a way to do so without formal access or a prior relationship with the board creates an obstacle to fulfilling her ethical duties. Ultimately, this leaves the board of directors unaware, and potentially exposed, to legal or compliance risks that require their attention.

#3 - The general counsel is viewed as independent from the management team

The first two indicators state that general counsel should have a seat at the management table and a relationship with the board. If the general counsel fails to maintain her independence, neither of those relationships will benefit the company the way they should. The value the general counsel brings to the table is compromised if she is seen as lacking the courage to challenge management decisions when necessary. While general counsel are a part of the executive team, they must maintain a delicate balance between that position and their duties to the company as their client. Further, the board needs to satisfy itself that the general counsel is achieving that balance in order to have a healthy corporate culture.

As a board member, it’s important to me that the GC understands that their obligation is to the company and not really to the CEO [who] hires them.

– From the Skills for the 21st Century General Counsel report

As mentioned above, the company is the general counsel’s client, and if the general counsel is overly beholden to management, the result may be advice and counsel that does not prioritize what’s best for the company.

Additionally, if such a perception is widely held throughout the company, it can erode the confidence that lower level employees place in the legal department. The general counsel should be seen as the senior executive most capable of pushing back on management decisions that put the company at legal or reputational risk. There must be a willingness by the general counsel to raise issues with the board, even if doing so may threaten her own standing with the CEO and other executives.

#4 – The general counsel is expected to advise on issues that extend beyond the traditional legal realm, including ethics, reputation management, and public policy

As a director, my experience is that boards look to the general counsel to give them perspective on not just the problems that present themselves … but also for guidance on things the board should be thinking about, and how particular issues fit into the overall context of the business.

– From the Skills for the 21st Century General Counsel report

If the general counsel is to manage risk and support an ethical corporate culture, she must be empowered to advise on issues beyond traditional legal matters. In addition to rapid changes in the legal and regulatory landscape, companies are navigating issues involving public policy, politics, the media, and social pressure from consumers. The increasing importance of these “business in society” issues means they can pose formidable risks to companies. Someone needs to have official responsibility for these matters and the general counsel is well suited for this task. Effective lawyering has always left room for evaluation of non-legal considerations. With the intense scrutiny that companies face in today’s world, it is important to consider how conduct that is technically legal can still be damaging to the company’s reputation, community goodwill, or its relationships with stakeholders. Corporate decisions in these areas need to be evaluated against a company’s risk appetite, integrity, and values.

Indeed, there is a trend toward consolidating control of some of the corporate functions that address these legal-adjacent issues within the legal department. For example, the ACC Law Department Management 2016 Report showed that the legal department often oversees the government affairs function (44 percent); security (23 percent); public policy (21 percent); and communications (19 percent).

Even if the general counsel is not directly responsible for these matters, management should proactively seek the advice of the chief legal officer on these issues. The legal department cannot be left out of the decision-making on such matters if an ethical culture is to thrive.

#5 – Business units regularly include the legal department in decision-making

If the CEO’s and board’s relationships with the general counsel set the cultural tone at the top, then the interaction between business units and the rest of the legal department create the mood in the middle. Companies must develop a culture where in-house counsel are regularly consulted in decision-making at levels below the general counsel. This ensures that legal and risk considerations are taken into account as new products, services, or business practices are developed.

Inclusion of the legal department in the decision-making process is especially essential as businesses expand into areas where the law is uncertain. It is those gray areas where legal counsel can be most helpful in guiding the company in a manner that follows its corporate ethical compass. Having counsel involved on the frontend of decisions is the difference between having a legal department that is engaged, involved, and actively preventative from a compliance standpoint, and one that just plays clean up after something goes wrong. Greater interaction between the business and legal teams also reinforces the idea that risk management is everyone’s responsibility. In today’s hyper-regulatory business environment, ignorance of the law will not shield an executive from indictment. The interaction between a business and its attorneys will look different across companies, but from the board’s perspective, if such interaction is not occurring, that might be a sign that corporate culture is underemphasizing legal and compliance risk.

The need for communication and collaboration with other functions is not limited to outward-facing business units — the internal-facing business units should also have established relationships with the legal department. Data security, for example, involves the law department and IT; the human resources department should provide information to support legal conclusions on employment matters; lawyers should be involved with the government affairs team to help define regulatory and legislative goals. In fact, because the legal department is so integral to the operations of a company, its reach can be a good proxy by which to measure communication and effective risk management across functions. If the board cannot find evidence of such collaboration, it could indicate a “siloed” corporate culture that exposes the company to unnecessary risks.

One important caveat to the above: However a company determines to facilitate the legal department’s involvement in decisions, it should not be done in a way that negates individual lawyers’ accountability to the general counsel. Several of the notable corporate scandals have been blamed, in part, on a lack of accountability between the general counsel and the line attorneys who had often seen signs of questionable corporate conduct. In other words, the attorneys who reported directly to business leaders were less effective in elevating issues of concern to the appropriate levels within the company. There should be general counsel oversight — perhaps a dotted-line reporting structure — over lawyers assigned to the business units to ensure proper reporting of issues of concern.

Conclusion

The five indicators below offer a checklist of current best practices of companies with strong general counsel and reputations for high integrity and ethics. These indicators can also be used as litmus tests of corporate culture. Given the incredible transformation of the corporate legal department over the last few decades, ACC believes we are just beginning to see the positive effects that a well-positioned general counsel and strong legal department can have on corporate culture.

❏ #1 – The general counsel reports directly to the chief executive officer and is considered part of the executive management team

❏ #2 – The general counsel has regular contact with the board of directors

❏ #3 – The general counsel is viewed as independent from the management team

❏ #4 – The general counsel is expected to advise on issues that extend beyond the traditional legal realm, including ethics, reputation management, and public policy

❏ #5 – Business units regularly include the legal department in decision-making

Jon Lindsey is the New York founding partner of Major, Lindsey & Africa. Over the past two decades, Jon has placed scores of partners and practice groups at many of the world’s top law firms and assisted firms in merger and branch office acquisitions. As the former global co-chair of the MLA’s Partner Practice Group, Jon helped to set strategy and coordinate the partner practice for the firm’s 25 domestic and international offices. He is the co-author of “Managing People in Today’s Law Firm” (Quorum Books, 1995) and the 2014 MLA “Lateral Partner Satisfaction Survey.” He gratefully acknowledges the contributions of his colleagues Robert Major Jr., Michelle Fivel, Ru Bhatt, Amanda Brady, and Greg Richter in the development of this chapter.

Markus Hartung is a lawyer and mediator. He is Senior Fellow at the Bucerius Center on the Legal Profession (CLP) at Bucerius Law School, Hamburg. His expertise in the framework of the CLP lies in market development and trends, management and strategic leadership as well as corporate governance of law firms and business models of law firms with regard to digitalisation of the legal market.      He is chair of the Committee on Professional Regulation of the German Bar Association (DAV). He is also a regular lecturer and conference-speaker on leadership, management topics, and professional ethics, and he has written numerous articles and book chapters on these topics. He is a co-editor and author of “Wegerich/Hartung: Der Rechtsmarkt in Deutschland” (“The Legal Market in Germany”), which was published in early 2014 and has developed into a standard reference for the German legal market. He is also a co-author of “How Legal Technology Will Change the Business of Law,” a joint study of The Boston Consulting Group and the Bucerius Law School (available here: http://www.bucerius-education.de/english/lawport/projekte/studien-analysen-und-veroeffentlichungen/).

     Emma Ziercke is a senior research associate for the Bucerius Center on the Legal Profession and a non-practising solicitor. Between 2002 and 2009, Emma worked as a corporate solicitor (managing associate) for Linklaters in London, mainly in the fields of private international M&A and public takeovers by scheme of arrangement. In 2014, she completed an Executive MBA with distinction and received an award for best overall performance from Nottingham University Business School. During her MBA studies she focused on law firm management and won an award for her dissertation on gender diversity in law firms. Her work as a research assistant at the Bucerius Center on the Legal Profession focuses on law firm management, gender diversity, and organizational behaviour.

What keeps John Doe, managing partner of a typical international law firm headquartered in London, awake at night? The Big 4, Alternative legal service providers (ALSPs), Amazon entering law, legal technology, cyber-attacks, and management mumbo jumbo about agile working and legal services innovation by others, and all that without worrying about the daily business of running a law firm. His partners have asked him to come up with a three-year plan to strengthen the firm’s position in its home market and internationally. How should he start? Should he read any of these clever books or articles dealing with development of the legal market?

Just few years ago, his bookshelf was all doom and gloom: Richard Susskind’s “The End of Lawyers?”, Larry Ribstein’s “The Death of Big Law,” Bruce MacEwen’s “Growth is Dead,” and Mitch Kowalski’s “Avoiding Extinction,” to name but a few [1] … All of these academics with their catchy book titles were not exactly encouraging. Now it seems they are engaging in crystal ball gazing: “Tomorrow’s Lawyers” (Richard Susskind), “Tomorrowland” (Bruce MacEwen), and “The Future of the Professions” (Richard and Daniel Susskind). But what is this one: “Robots in Law: How Artificial Intelligence is Transforming Legal Services”?[2] So, what does the future hold?

The crystal ball contains a startling premonition as legal market intelligence such as The Lawyer and Legal Week ask: “When will artificial intelligence replace lawyers?” Not “if,” but “when” and “to what extent” will artificial intelligence replace lawyers? The crystal ball also contains a murky picture of a shifting legal market, with new businesses emerging and potentially stealing work from traditional, brick-and-mortar law firms. Who are these “alternative” service providers? They don’t appear in the U.K. or AmLaw Top 100, so nothing for John Doe to worry about. Or is there? As Richard Susskind says, “the competition that kills you, doesn’t look like you.”

So, how will John Doe find out? Who has the answer to today’s questions? To know the right questions would be a good start. There are many John Does out there who valiantly navigate their firm through heavy weather and turbulence. We at the Bucerius Center on the Legal Profession, a think tank at Bucerius Law School in Hamburg, have spoken to many of them. Our Center does research and analyzes legal markets in order to provide market participants with knowhow and knowledge regarding the best practices of law firms and in-house legal departments. Here is what we talk about when we spend time with the John Does:

Law firms should focus on three core areas when it comes to setting up a plan for the next three-plus years. Such an approach may be timeless, but it must constantly be updated as the changing market environment leads to different conclusions. Law firms have to:

1. Deal with their strategic positioning;

2. Focus on client service (the what and how of legal service delivery); and

3. Make sure that their partnership structure is well aligned with the strategic goals of the firm.

Focusing on these three core areas is sufficient, but what about legal technology? Innovation? Profit sharing? Governance? Mergers? Each of these is important, but first things have to be put in perspective. Just grabbing a buzzword — e.g., “innovation” or “profit sharing” or buying some clever technology — has nothing to do with strategic goals and leads to aimless activism without any success.

Before discussing the core items, one has to understand that all three topics are applicable for each type of law firm, be it a global player, a boutique, an international firm, or a category killer. The questions are always the same, but the answers are not. The most important topic is strategic positioning; hence, we will spend more time on this subject.

Strategic Position

Strategic positioning has a lot to do with knowing oneself and understanding the dynamics of markets in general, not just legal markets. Law firms tend to look at themselves as something special and unique; actually, they aren’t so special. The legal industry can learn a lot from other industries. A useful way to understand how the legal market has changed shape since the financial crisis — and what it could look like in 2025 — is to analyze market data from 2007 until today. However, rather than overly focusing on each firm’s turnover and profitability on a year-to-year basis through endless listings, we prefer to compare movements of certain groups of firms. This is not a new method of looking at legal markets.[3] While John Doe may feel comfortable observing his national market, the global market is part of the industry analysis that John Doe must carry out to determine his strategic position. 

In 2007, following an analysis carried out by McKinsey, one could identify five different groups of law firms:

(i)              The global elite (e.g., Wachtell, Slaughter and May);

(ii)            The challengers (a group of firms spanning the spectrum of Sullivan and Simpson Thacher to Ashurst and Herbert Smith);

(iii)           The middle field (e.g., Orrick, White & Case, Mayer Brown);

(iv)           The Magic Circle (including U.S. firms such as Latham & Watkins or Skadden); and

(v)             The global law factories (e.g., Baker McKenzie, DLA Piper).

By 2013, the legal market had changed significantly, with the market for international law firms seemingly split up in two major segments: the elite segment and the global law factory segment. In 2014, we predicted that the challengers would drift farther apart, with the top performers joining the global elite and bottom performers joining the middle field. This would leave the existing middle-field firms “stuck in the middle.” We repeated this strategic mapping in 2017 for the same groups of law firms. Looking at each group in turn, let’s see what has changed…

The global elite continue to be the strongest-performing group, with the highest-earning firm, namely Wachtell Lipton Rosen & Katz, recording a staggering $6.6m PEP.[4] It may, however, be a case of the richer getting richer and the poorer getting poorer, as the difference between the highest and lowest performers now stretches to some $3m.

As predicted, the challengers are drifting farther apart,[5] with the top performers (firms such as Paul Weiss Rifkind Wharton & Garrison, Sullivan & Cromwell, or Simpson Thacher & Bartlett) joining and even outperforming some of the global elite, while the worst performers (Ashurst, Herbert Smith Freehills) are dropping below some of the middle-field firms.[6]

The middle field (firms such as O’Melveny & Myers and Orrick Herrington & Sutcliffe) has remained stable in terms of average PEP and average partner numbers. Although not as extreme as the global elite or the challengers, the gap between the highest- and lowest-performing middle-field firms is widening rapidly.[7]

The Magic Circle (including the likes of Latham & Watkins and Skadden Arps) has also remained stable,[8] with the gap between the highest- and lowest-performing firms spreading more slowly over time.[9] Finally, while growth in the global law factory group (namely Baker & McKenzie, DLA Piper, and Jones Day) has been slower[10] than for the global elite, and the PEP gap between the highest- and lowest-performing global law factories has remained stable, the number of partners has changed significantly. Some global law factory firms have significantly reduced the number of partners, making them more akin to the Magic Circle group, while others have continued to grow, resulting in a staggering difference of more than 500 partners between the biggest and smallest global law factories.

The overall result is that the global elite (plus a few challengers) are pulling away from the pack, while the global law factories (less a member or two) continue to expand. Left in the middle is a mixture of lower-performing challengers and middle-field firms. Only the Magic Circle can continue to be distinguished as a separate group of firms in this segment of the market. While these findings may help John Doe understand the changing global legal market, one crucial part of the strategic jigsaw is missing.

Reliance on the usual market data (law firm rankings such as AmLaw 100 and the U.K. Top 50) ignores an interesting movement in the legal market. A new group of players, “alternative legal service providers,” has squeezed into the picture, but who are they? As they are not brick-and-mortar “law firms,” they don’t appear in the law firm rankings and little information about them is available. A recent study[11] on the market for alternative legal service providers estimates the size of the new market segment to be $8.4 billion annually. Although not quite matching the value of the U.S. legal market at $275 billion, it is not an insubstantial figure for an emerging market. These players are made up of a diverse group of providers, from outsourced legal work (such as document review) to insourced legal work (for example, temporary lawyers) or entire managed legal services (traditional in-house legal functions). Outsourced legal work by the likes of QuisLex, Consilio, and Thomson Reuters accounts for some 70 percent of this emerging market. This is a group of players that John Doe needs to know more about. Especially as, according the study, the use of these alternative legal service providers by corporations and law firms is strong — and is expected to grow.

The “middle of the road” firms have come under extreme pressure, and the jury is out on their future. Will they eventually cease to play a role? This depends on a number of factors. John Doe has to make a decision because there will no longer be an international “middle of the road” law firm segment. Remember the words of political activist Jim Hightower that ring true today and apply to John’s situation: “There’s nothing in the middle of the road but yellow stripes and dead armadillos.” The middle is clearly a dangerous place to be.

So, what are John’s strategic options? Move toward the global elite? Tricky — the sterling brand and sparkling client book of the Wachtells of the legal world cannot be achieved overnight. Merger? According to our crystal ball (this time in the form of The Lawyer Global 200), international expansion is not a watertight growth strategy. In fact, revenue increases in the Global 200 were mostly enjoyed by the richer firms, while merging firms tended to record drops in revenue. Furthermore, the John Does of this world are often already too large to be an attractive merger partner. Finally, maybe he should look at law firm networks: groups of firms who are balancing their independence with the ability to expand their referral network, and are able to quickly scale up in cases where size matters.

Having said that, to avoid being “stuck in the middle,” John Doe could dig up some classical strategy and follow Porter’s advice of pursuing either a cost leadership strategy or a differentiation strategy (but not both). Cost leadership without sacrificing quality in the legal services market for a middle-field firm could well be a tall order; after all, how many Ryan Air-style law firms are in the top 100? He is left with no choice but to differentiate his firm’s service offering. Although one could say that the changes to the legal market coupled with advances in technology have forced the John Does of this world into a corner, it may actually be a blessing in disguise. The emergence of alternative legal service providers is forcing law firms to view their strategic position along buy (not sell) lines. Thus critical to John Doe’s decision on how to differentiate his service offering from the rest of the field, is the answer to the question, “which legal services are being purchased, and how?”

Client Focus 

Every law firm makes a promise to clients: “We are the best thing that could ever happen to you.”

Clients tend to smirk when they hear this; from their perspective, their relationship with law firms is difficult, to say the least. Why is this the case? It seems that too many law firms do not stick to a really simple rule: Know your client, and know yourself. In other words, know who your clients are and why they chose you.

Does that seem too simple? Right, it is that simple. Knowing one’s clients means far more than sending Christmas cards, or inviting general counsel to lunch or even dinner. It means knowing clients inside-out, knowing why their CEO can’t sleep at night, knowing what their appetite for risk is, why their numbers are down (or up), what is happening in their relevant market, and exactly how they want to receive your advice. And yes, clients are becoming more demanding. They want quality of service at an acceptable price. Like Amazon shoppers, they want to compare prices. Traditionally, when clients had a legal problem, they searched for a named law firm. Today, when they have a legal problem, they search online (yes, including “Google”). Clients are far more sophisticated when it comes to legal procurement, with clear requirements and excellent knowledge about the market. In fact, the historical asymmetry in information and expertise between the client and the lawyer is finding its equilibrium. The number of highly qualified lawyers moving in-house is increasing,[12] and information is becoming more readily available. Not just legal information, but information about how the transaction is progressing, how the matter is being staffed, and how much it is costing — and all in real time. This means that John Doe will have to find a new value proposition for his clients.[13]

The second bit is: What do we have to offer, and why did they choose us? Not knowing the answer should make managing partners extremely nervous. This is the current cutting edge of competition in the legal market. Legal technology offers John Doe the differentiation toolbox that he needs to design his new service offering. He doesn’t have to replace his associates with robots. Legal technology offers solutions for everything from predictive analytics to simply providing a more efficient platform for clients to interact with their lawyers. Firms who are able to differentiate themselves from their competitors by offering the client additional services, such as legal project management and legal data analytics, are able to survive — at least until a competitor decides to replicate those services.

Part of this exercise is innovation, by means of product innovation (which is what we know as creativity) and service innovation. We all love to receive better service, day by day. Clients do, too. The client’s increasing expertise, coupled with the new service offerings of the alternative legal service providers, means that John Doe’s focus on client service must target the what and how of service delivery: which services (legal and non-legal) does the client want to buy, and how does the client want to receive them.

Regarding product and service innovation, many articles and books have been written on these issues. There are so many ideas out there to better your client service in order to put yourself ahead of your competitors. Just go out and start doing it.[14] The only stumbling block for John Doe is persuading his partners to invest in this new buzzword…

Alignment of Partners

It is odd, but whatever type of firm we talk to, they all claim to have and maintain a partnership structure.

Even those firms that have up to 1,000 partners (who don’t know one another and who need name tags at their partner meetings in order to differentiate themselves from the service personnel) hold themselves out as partnerships. We are afraid this is an endless source of misunderstandings and causes strategic, structural, and cultural mishmashes.

What do we mean by “the partnership model”? It is something very simple: two or more people joining forces to pursue common goals with a view to achieving profit. That’s it. Very successful structure, very profitable, no hierarchy, easy to handle. This system has two core attributes: peer group transparency and peer group pressure. Without this, a partnership is not a partnership; it will then be more of a barrister’s chambers (by means of the U.K. system of independent barristers sharing offices and infrastructures) rather than a partnership.

Obviously, the partnership model has lost its supporters. In 2012, Stephen Mayson[15] predicted the extinction of this model — quite rightly, from his point of view: As long as partners do not share a common vision and common strategic goals, they remain in a status of a rather unorganized group of sole practitioners, with no long-term future. Jonathan Molot’s paper, “What’s Wrong with Law Firms,”[16] is the last nail in the coffin for the partnership model: The “short-term” nature of the partnership model stifles much needed long-term investment and will eventually lead to its demise.

But these conclusions must be nuanced: The partnership model is useful but not always applicable, and the weaknesses of this model are more often connected to the improper handling of the model rather than to the model itself. Laura Empson’s recent and extensive research into leadership in professional service firms[17] confirms that despite being “smart” people, professionals often don’t lead in the way we expect them to. The senior partner of one of the world’s leading law firms is reported as saying that “leadership just sort of happens” — not quite what one would expect from a successful partner.

Despite its drawbacks, the partnership model remains, according to Empson, the optimal legal form of governance for reconciling competing interests. We would hesitantly agree with her, but only for certain law firms. It does work in practice; look at the premium segment of the legal market. For these law firms with, say, up to 100 partners, the traditional partnership model is the only conceivable structure.

What about the law factories? Law firms with offices all over the world are more like a corporation and should structure themselves accordingly. While traditional partnerships do not need anything like genuine management, law factories can’t do without it. That also applies to Swiss Vereins — this structure was sold as something that could do without global management, but in reality no Swiss Verein has a long-term future without a management structure. This has consequences for those who are called “partners”: no veto rights and no right to deviate from the firm’s strategy. It is not a majority versus a minority of partners; it requires partners to put the firm’s interests over and above their own personal interests. You don’t like it? Go and choose another firm.

Finally, the business of law firms, be it a traditional partnership or a law factory, has nothing to do with partnership models. The firm’s IT, HR, marketing, and other service departments have to be organized and managed like a corporation, even in traditional partnerships.

And this is it for John Doe. Three simple topics to focus upon: market position, client focus, and structure. This should be the starting point for the firm’s plan to make sure it is still there in three years.

Roland Vogl is the executive director and lecturer in law for the Stanford Program in Law, Science & Technology, and the co-founder and executive director of CodeX – The Stanford Center for Legal Informatics.

More than ever before, lawyers in the U.S. and other parts of the world pay attention to legal innovation. Many firms have hired chief innovation officers and/or put a partner in charge of tracking innovation pertaining to the firm’s particular area of business. They are also hiring more and more legal project managers who are tasked with making sure that a firm’s expertise is packaged and made available to the clients in the most cost- and time-efficient way possible. At the same time, corporate legal departments are hiring legal operations professionals who specialize in the many ways that technology can make legal processes more efficient. In recent years, we have also witnessed an explosion of legal tech startups that provide a broad range of services to law firm or in-house customers. Generally speaking, we see innovation in legal research technologies, in big data analytics, in legal expert systems, in legal infrastructure (such as practice management and lawyer-client match-making marketplaces), and in online dispute resolution. At times, law firms and corporate legal department find themselves overwhelmed with the sheer number of new offerings in the legal tech space, sometimes resulting in a reluctance to try out new solutions.

CodeX — the Stanford Center for Legal Informatics — is focused on researching and developing technologies in the realm of computational law. Computational law is the branch of legal informatics concerned with the automation and mechanization of legal analysis. To that end, it leverages rule-based as well as statistical AI-based techniques (e.g., machine learning and Natural Language Processing). The former rule-based techniques are used to create new “TurboTax”-like solutions for specific areas of the law or for computable self-executing contracts. The latter statistical AI techniques are used to conduct analytics in legal settings, including so-called “predictive analytics.” In essence, predictive analytics is the use of data, statistical algorithms, and machine learning techniques to identify the likelihood of future outcomes based on historical data. The CodeX LegalTech Index, an open source database that at this point counts more than 730 legal tech companies, currently includes more than 38 companies in the analytics space. Those companies are innovating in search, eDiscovery, judicial/litigation analytics, contract analysis, IP analytics, legislative prediction, predictive policing, and lawsuit financing. The use of predictive analytics in law raises important questions. First, there are questions around technical feasibility. Getting access to high-quality training data to build predictions is challenging because most legal documents are in unstructured text form. Secondly, there are questions around transparency and explicability. These become problematic when data is used to not only show trends or patterns to a lawyer, but also to predict legal outcomes or to automate certain legal decisions. Systems that leverage predictive analytics and mechanize certain aspects of legal decision-making must be transparent and verifiable.

We are also seeing an increasing use of multi-sided lawyer platforms to foster new ways of finding or collaborating with clients or other lawyers. Some companies provide both platforms for lawyers as well as predictive analytics capabilities for their users (e.g., contract life cycle management solutions that also provide contracts analytics aimed at predicting risk in transactions; or lawyer client match-making platforms using machine learning and big data analytics to make the perfect match).

Adopting new legal technologies in any legal operation — be it in a law firm, corporate legal department, in government, or the judiciary — is a non-trivial undertaking that frequently reveals the challenges a particular organization faces when undergoing change.

There is no doubt in my mind that future legal professionals will have to approach legal solutions through the lens that an engineer might use when solving a computational problem. In addition to providing their legal expertise, they will have to think about how technology can be leveraged to distribute their expertise in the most efficient and cost-effective way. There will be technologies that replace certain tasks that are currently handled by human legal professionals, and there will be technologies that enhance human legal professionals. In any event, this is the time to rethink how the business of law can work. And there are already many great examples out there that show how legal services can be provided to clients in efficient and cost-effective ways, while still being profitable for lawyers. 

Today, legal marketing professionals are playing an increasingly strategic role for law firms. These professionals bring to the table both the business acumen and skillset necessary to add unique substantive value in helping to drive the business of the firm. This underscores a very important value-add to the firm: providing support to attorneys in the critical area of business growth at a time when budget and resources are stretched thin.

According to a 2016 joint survey[1] from the Legal Marketing Association (LMA) and Bloomberg Law®, more than 80 percent of law firm attorneys cite a lack of time as their primary challenge in developing new business for their firms. An additional 30 percent cite lack of staff as a factor, while another 21 percent point to budget constraints. This comes at a time when law firm focus and emphasis on business development and marketing continues to increase because of internal and competitive pressures. The survey states that 67 percent of attorneys agree their law firms are increasing their emphasis/focus on business development and marketing efforts.

For legal marketing, this move into the role of strategic business partner marks the next evolution of the profession. For more than four decades, legal marketers have played an important role for law firms in such areas as communications, market research, ad campaigns, and event management. Through the years, that role has continually refined with the emergence of such vital tools as mobile and social technologies, and the growing role of Big Data, all making information more readily available and accessible.

As attorneys face the pressure of generating new business, that role evolves even more, with marketing professionals undertaking an increasingly diverse set of roles and responsibilities. These roles touch practice and process improvement, business planning, attorney coaching, and client service and relationship management.

A 2017 joint study[2] by LMA and Bloomberg Law furthers this point, demonstrating a mindset shift from the practice of law to the business of law, with marketing and business development activities being largely aligned with driving revenue for the firm. In fact, the data shows more than 82 percent of leading marketing/business development professionals direct initiatives related to revenue growth.

Today, the strategic legal marketer is one that is considered to be an advocate for the voice of the client, a collaborative partner with all law firm business functions to deliver client value, and extremely engaged with business planning and client service/relationship management initiatives in these fundamental ways.

Invested in the Client

Law firms increasingly place primary emphasis on developing broader and deeper relationships with current clients and growing organically in the practice areas and geographies where they are already strong. Legal marketers are committed to influencing and leading change to better serve clients.  

When it comes to differentiation, professionals surveyed by LMA and Bloomberg Law[3] point to investment in client experience and development of greater knowledge of, and expertise in, their clients’ businesses as the most effective tactics. These two items reflect a shift to a client-first mindset and mirror the growing customer experience trend at the forefront of many consumer products and B2B businesses.

Also reflective of a growing client-first perspective, marketing/business development professionals are clearly focusing business intelligence activities on better understanding their clients by tracking news (87 percent), tracking company information (76 percent), and tracking industry data/trends (71 percent) to prepare for client meetings and deliver news/current awareness updates to attorneys.

Refining Core Skills

As legal marketing professionals look to further position themselves at the center of the firm’s evolution, the need to consistently refine their set of skills is vital. These skills must be founded in both the business and practice of law.

The Legal Marketing Association (LMA) — the “authority for legal marketing” with 4,000 members — defined the core set of skills for legal marketers in a foundational resource called the Body of Knowledge (BoK). The BoK clearly defines the essential and accepted domains, competencies, and associated skill sets within the legal marketing profession at every level.

This resource helps legal marketers hone their skills, assists legal marketing managers to develop themselves and their teams, and provides a universal benchmark against which legal marketers can be assessed. We invited leaders in each of the six BoK core competencies to share their insights on key trends and developments in each area.

The Business of Law

Those marketing and business development professionals who are appropriately proficient in the business of law understand the legal profession and are able to evaluate firm financial and operational performance, build strategies to leverage market opportunities, and implement practices that maximize performance.

When you look at the specific competencies that define these abilities, you start to see important areas of expertise that should be familiar to anyone who aspires to lead within a law firm.

Many competing opportunities exist, which means that legal marketers must play a role in being able to choose those with the highest return and then collaborate to put them into action. The work of realizing opportunities must integrate the efforts of multiple departments. For example, a new practice area will require new promotional materials, but it will also likely involve recruiting new attorneys to fill in missing capabilities; other functions will also have an important role to play.

The “business of law” is changing rapidly because of two factors. The first is technology, which requires efforts across multiple fronts (Technology Management is one of the BoK core competencies); the second involves the evolving nature of client expectations. Leaders understand how these two forces will change a firm, and can be prepared to address and exploit them. Leaders must show the way and not respond after events have already swept by.

Increasingly, an important feature that will differentiate successful and unsuccessful firms is the capacity to bring all talents to bear, irrespective of their position in the firm and legal training. Firms must draw on the talents, perspectives, and energies of all attorneys and professional staff; the perspectives of all roles and responsibilities should inform strategies and tactics.

Client Services

In order to build revenue, firms need to not only focus on securing new business, but also on retaining current clients. According to Harvard Business School and BTI,[4] profits will increase by 25 percent or more when client retention rates are elevated by 5 percent. 

When focusing on client retention, one way for firms to differentiate is through client service. Legal marketers continue to play an important role in this function by implementing client service initiatives using the following techniques:

1.     Establish Client Service Standards Immediately – Instituting a process for client intake, therefore ensuring a smooth onboarding with the firm, can really set a positive tone for a client relationship.

2.     Understand the Clients’ Business – In addition to helping attorneys study and grasp client objectives, industry trends, news, and policies; legal marketers also recommend attorneys take time to visit the client and really ingrain themselves in the working of the company.

3.     Keep Clients Informed – Attorneys should be the source of information pertinent to a client’s business. Rather than relying on general firm emails as a means of informing clients of legal developments or upcoming events/webinars, legal marketers counsel attorneys to email content directly and/or pick up the phone to discuss. They also recommend that attorneys establish benchmarks for delivering regular status updates on legal work. Feeling uninformed can result in client frustration. Clients should never have to ask for an update.

4.     Request Feedback – Legal marketers work with attorneys to conduct post-matter reviews so they can hear directly from the client what the firm did well and what could be improved upon. Legal marketers make note of the feedback, develop a tailored action plan for the next matter, and leverage that information across firm clients. Conducting annual client assessments are another avenue for securing feedback on the firm’s overall performance, responsiveness, quality, and consistency. These in-person meetings typically yield valuable, actionable client intelligence, and are often more open and productive with legal marketers in attendance to help facilitate the conversation and provide an objective assessment.

Communications      

Effective communication includes knowing the audience; communicating in a clear, concise, and timely fashion; maintaining a good demeanor; ensuring accuracy (and moving quickly to correct any inaccuracies); and maintaining a resourceful mindset.

Consider this: A marketing liaison on a high-profile project that involves a firm’s IT department and senior partners is instantly faced with three different audiences, each with its own communications style. Some issues that need to be considered are how to effectively communicate the project timelines to these audiences; how often to provide updates; and how to receive information from one audience and distill it for another so that all understand the status of the project at any given time.

The adage is true: Your knowledge is useless unless you can effectively communicate it to an intended audience. This is why having a resourceful mindset is so important. In the scenario above, the strategic legal marketer understands basic IT lingo and then how to translate that into an update for the senior partners and a relevant selling point to convert new clients. Looking at the reverse, it’s likely that the marketer will receive very limited information from the senior partners and have to create a list of actionable next steps for the IT team and/or marketing team.

Strategic legal marketers are effective communicators who are able to receive and distribute complex information in a way that keeps stakeholders satisfied.

Technology Management

Twenty years ago, a marketer’s skills included good writing and having a mastery of design, PowerPoint, print, direct mail marketing, public relations, and event marketing. Today, a marketer additionally must have mastery of the large number of technologies available to effectively market his or her organization.

Marketing has become so technological that many organizations now have a “marketing technologist” — who is considered a bridge between IT and marketing — a technologically savvy professional with a deep understanding of data, analytics, and legal operations coupled with the creative mindset to transition raw data into actionable insights to drive marketing results. But, all marketers must have a mastery of different technologies in order to apply them appropriately.

Marketers must be good technologists for a few simple reasons:

1.     The people that we reach are online;

2.     The ability to engage online is so effective; and

3.     Technologies can amplify marketing efforts effectively.

Technologies used to market

The role of marketing departments in law firms usually spans traditional marketing — the action or business of promoting and selling products or services, including market research and advertising — and sales pipeline management — the action of turning qualified prospects into paying customers.

Consumers can now engage with a company at an event; online through web pages, videos or mobile app; through printed materials; or via social media. Marketers understand the strengths and weaknesses of each of these media and channels — including their costs and potential returns on investment (ROI) — and understand which ones to use for a particular marketing goal. Marketers are proficient at providing a seamless experience, regardless of channel or device.

Business Development

Much like law firms themselves, legal marketing professionals are challenged constantly to prove their worth by adding value for their “internal clients.” Marketers today bring to the table well-honed business development skills and the ability to provide guidance and support to attorneys as they work to expand their books of business. Marketers leverage sharp business development skills and enable lawyers to put their best foot forward in pursuing work.

Many law firm marketers are called upon to provide “coaching” for the lawyers they support. To adopt a sports analogy in which lawyers are the players, business development, when well executed, can and should encompass not just the role of the game-day coach on the sidelines, but that of the team’s entire coaching and front office staff. In winning legal work, as in sports, securing a victory takes more than just fielding the most talented team. Rather, it requires critical behind-the-scenes planning and preparation that all falls under the rubric of business development. This includes assessing the landscape and the opponent, selecting the most effective combination of players, and educating them on the particulars of the challenge ahead. This helps them to develop a unified approach that utilizes each team member’s strengths, ensuring that they practice and condition themselves to identify and seize upon opportunities that may arise, developing contingency plans for how to respond when things don’t go as planned, and being nimble enough to react when momentum shifts. Although execution and implementation may ultimately fall on the shoulders of the players, there is no doubt that the most respected coaches are those who, time and time again, put their teams in the best possible position to win.

By taking on an active role in business development and collaborating with lawyers to map out game plans and training regimens that ultimately yield success, legal marketers are helping to advance the goals of the organization.

Marketing Management and Leadership

 A highly functioning marketing organization transforms what would otherwise be random acts of marketing into systematic efforts that help achieve a firm’s strategic objectives, thereby amplifying the value of the function.

Understandably, managing and leading a function is an advanced skillset that requires both “IQ” and “EQ.” Intelligence Quotient, or IQ, refers to a person’s intellectual abilities. Emotional Quotient, or EQ, measures a person’s ability to identify and manage emotions, both their own and those of others, which helps them create the relationships that enable collaboration and leadership.

The intellectual challenges for a marketing leader start with creating a vision for the function that articulates the difference it can make for a specific law firm. Then, the choice of organizational structure must support the vision, and reflect the culture and strategy of the firm. The next task is designing the work processes that will operationalize the structure, including identifying the marketing technologies and tools that will best support those processes. Finally, a seasoned marketing leader will be able to develop a resource plan, including a budget, to execute the vision.

Of course, people are required to bring the organization to life, making personnel management a central component of successfully leading a marketing function. Attracting, developing, and retaining high-quality talent requires emotional intelligence and leadership ability. These skills can be cultivated and strengthened over time, and the dividends of doing so are high. Instilling teamwork and building a collaborative culture within the function leads to higher productivity and seamless service to the firm. It encourages everyone to contribute and creates joint accountability for the function’s performance. Investing in training and coaching programs further elevates skillsets and helps retain valuable talent, all of which has a positive impact on morale.

An effective marketing leader is also able to adroitly manage vendors and consultants to maximize the value received. These external resources bring several key benefits to the table, including: insight into best practices; the ability to outsource subject matter expertise; competitive intelligence; pressure release on strained internal resources; and professional development and skill enhancement opportunities for the internal staff who work with them. The strategic legal marketer has a keen sense of when and where to use external vendors and consultants in order to provide much needed flexibility.

 A Role Refined

 Today, the role of marketing and business development professionals within law firms looks much different than it did just a few years ago. That role will likely evolve even further in the years ahead.

As new demands continue to place additional pressures on business development and client service, law firms can increasingly look to marketing and business development professionals to play a more strategic role in growing the business. For law firms looking to best position themselves for future success, marketing and business development professionals can and should play a valuable role, particularly when firms are mindful of providing the necessary tools, resources, and support.

[1] Legal Marketing Association & Bloomberg Law, 2016 Joint LMA-Bloomberg Law Survey Report, https://www.legalmarketing.org/bloomberg-lma-survey.

[2] Legal Marketing Association & Bloomberg Law, 2016 Joint LMA-Bloomberg Law Survey Report, https://www.legalmarketing.org/p/cm/ld/fid=2674.

[3] Id.

[4] Frederick F. Reichheld & Phil Schefter, E-Loyalty: Your Secret Weapon on the Web, Harvard Bus. Rev. (July-Aug. 2000), excerpt available at https://hbswk.hbs.edu/archive/the-economics-of-e-loyalty. 

At its core, the argument (against advertising) presumes that attorneys must conceal from themselves and from their clients the real-life fact that lawyers earn their livelihood at the bar. We suspect that few attorneys engage in such self-deception.… Bankers and engineers advertise, and yet these professions are not regarded as undignified.

-        Bates v. Arizona, 433 U.S. 350, 369 (1977)

The business of law has radically changed over the past 40 years. This change was underway before Bates v. Arizona, in which the Supreme Court authorized advertising. The case transported the business of law out of the shadows and into the open. It meant that lawyers had the constitutional right to treat the practice and profession of law as a business.

The case was brought against John Bates and Van O’Steen, partners in a two attorney legal clinic they started
 almost right out of law school. While the case involved only a small printed ad in the local newspaper advertising reasonable priced legal service, the ripple effects from the decision ultimately have produced a tsunami going beyond the United States. It affected the entire world’s legal profession. Internationalization and now globalization spread the idea around the world that law is indeed a business with advertising, marketing, pictures, websites, logos, directories, rankings, mergers, bankruptcies, alternative structures, consultants, networks, takeovers, and more.

Ethic rules were not ignored, but they simply could not apply when dozens of firms had more than 15 offices outside of London or New York. Advertising their offices in the United States meant indirectly advertising the offices in other countries. Local firms remained handcuffed by the rules and sought out business alternatives to protect their market. The underlying ethical rules governing the practice and the business of law began to erode.

More competition meant that more services were offered and more products were created to allow firms to openly compete. Products and services were now aimed at getting a competitive advantage and increasing profit. Almost anything seemed to be okay for the small advantage of obtaining and keeping a client.

However, the business of law was still largely tethered to the earth until the mid-1990s.

The Internet and communications technology propelled the business of law into a new era. The Internet, while applicable to every business, has asserted a profound effect because law is a business based upon information. In the practice of law, it is information on clients and opponents.

In the business of law, it is information on business practices.

The authors of this compendium have explored each aspect both on the micro- and macro levels of the business of law. Each of the chapters in this book relates back to the changes that have manifested themselves. Consultants have become specialists; in fact, everyone has become a specialist.

So where does the business of law go from here? In my opinion, five primary macro trends will push the business of law into uncharted waters.

Law firms’ structures will change. Five of the very largest law firms have opted to become networks using Swiss vereins as a way to accelerate their expansion. They have copied the largest accounting networks, whose brands are recognized worldwide. This will push the largest firms to move even farther toward a new business entity model. This will require restructuring, redeployment of resources, training, and technology to manage the attorneys in culturally diverse offices. The expertise to accomplish this will be found both in-house and with outside consultants who can lead the firms into the unknown.

Branded firms will compete with the largest independent regional or national firms. The branded firms will also increasingly compete with local firms in order to effectively and efficiently utilize their resources. This will require new services and products for both the largest and the smallest firms.

At the same time, outside of the United States, the PwC, Deloitte, KPMG, and E&Y legal networks will rapidly redeploy into the legal market by focusing initially on tax, mergers and acquisitions, labor, immigration, and other commercial areas. This will be a cause for concern for even the largest independent firms, given the resources and organizations of the Big 4.

Social media marketing will come into its own as the Internet generation takes leadership positons in law firms and corporate legal departments. This will allow the smallest firms to compete with the largest. Specialty firms will become even more specialized and be able to market their services using social media.

Technology combined with redefining legal services has resulted in the unbundling of services traditionally provided by law firms. Firms and corporate clients will have an opportunity to take advantage of these services. The leaders and influencers will affect the pace and development of these alternatives. Both law firm and corporate counsel leaders will create alliances with the alterative resource providers.

John Bates and Van O’Steen were leaders who challenged the legal profession. Today’s leaders in legal media, consulting, networks, law firms, bar and professional associations, legal process outsourcing, and other services and products will continue this tradition by posing the same challenges.

 Law is a profession – Law is a business.   The two are inseparable.

Joseph Borstein Co-Founder and CEO of LexFusion and was a managing director with EY. He is a former global director of legal managed services at Thomson Reuters, formerly Pangea3, and previously served as director of Litigation Solutions. In this role, Borstein lends his expertise to existing and prospective clients by providing them with the latest information regarding the law, ethics, and best practices in the rapidly evolving world of electronic discovery. Clients will likewise benefit from his extensive experience in data collection and preservation.

     Prior to joining Pangea3, Borstein practiced law at the New York office of Kasowitz, Benson, Torres & Friedman LLP, where he litigated complex civil cases in federal, state, and administrative courts. He has extensive experience in law suits related to securities fraud and market manipulation; civil racketeering (“RICO”); intra-corporate disputes; contract disputes; disputes from derivatives and other sophisticated financial products; as well as S.E.C. enforcement actions. He also has personally managed and conducted complex document reviews or productions in litigations involving regulated financial institutions, insurance companies, real estate investment trusts, hedge funds, private equity consortiums, and pharmaceutical companies. Borstein received his B.A. in psychology and his J.D. at the University of Pennsylvania. He is located in Pangea3’s New York City headquarters.

Edward Sohn SVP, Head of Solutions at Factor and was  a managing director with EY. Previously, he worked at Thomson Reuters. He contributed his extensive experience in managing all aspects of the eDiscovery process including preservation, collection, review, production, and fact investigation, ensuring that Thomson Reuters LMS clients received superior quality through cost-effective and efficient processes. His role involved developing the strategy for new client engagements, managing client-dedicated project teams and mentoring project managers. 

     Prior to Thomson Reuters, Ed was a senior attorney in business litigation at King & Spalding, LLP in Atlanta, Georgia. At King & Spalding, he represented financial institutions and Fortune 500 companies in matters related to civil and regulatory financial claims, class action and securities litigation, government investigations, healthcare litigation, and commercial disputes._

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Biglaw is boring. In mid-2014, we pitched a regular column on legal entrepreneurship and alternative legal services providers to a leading legal blog, Above the Law (“ATL”). In our pitch, “our holy purpose” was to prove to the broader community of lawyers that traditional players (Biglaw firms, in-house departments, government entities) are no longer the only show in the legal-town, and certainly not the greatest show on earth.[1] We wanted to show that there are awesome alternative legal businesses employing some of the nation’s best legal talent, changing the legal system for the better, and bringing home the proverbial bacon. ATL agreed that we had unearthed a story that wasn’t being properly covered and graciously gave us a bi-monthly column, which we dubbed “alt.legal.”

Since the launch of the alt.legal column, we have published a number of stories on legal startups and entrepreneurs. We have traveled the country interviewing legal innovators, writing about everything from legal hackers to legal machine-learning to robot law enforcement to Biglaw refugees reinventing litigation management. And we didn’t have to search far — our inboxes have been inundated with new stories of legal entrepreneurs, alternative legal service providers, and legal technologists working hard to change the game for the better.

The market has taken notice: measured in investment, venture capital is flowing into legal startups at an accelerating pace ($458 million in 2013, up from $66 million in 2012).[2]

Bottom line, the “practice of law” is being deconstructed, redefined, and opened to new players. Specifically, the forces creating this transformation are: (1) market pressure from upstart entrepreneurs and alternative service providers; (2) value and expertise imported from models of process and business efficiency; and (3) structural changes challenging the traditional boundaries of legal practice. How big are these changes? Here are some examples.

·       Our company (a formerly wholly-owned subsidiary of Thomson Reuters and now a part of EY (2019), employs approximately 1,500 full-time attorneys (largely in India), conducting large scale legal support projects for many of the Fortune 100 and AmLaw 100 firms. We believe we are the largest private employer of attorneys in a country of 1.2 billion people.

·       According to Legal Business magazine, a U.K.-based trade publication, one of the top 10 “overall advisors” in the U.K. market is Axiom, a legal services company that is not a law firm.[3] kCura, the developers of e-discovery software Relativity, received $125 million from San Francisco-based ICONIQ Capital to invest in people and technology.[4]ccording to Legal Business magazine, a U.K.-based trade publication, one of the top 10 “overall advisors” in the U.K. market is Axiom, a legal services company that is not a law firm.[3] kCura, the developers of e-discovery software Relativity, received $125 million from San Francisco-based ICONIQ Capital to invest in people and technology.[4]Legal Businessnot a law firm[3][4]

While we are fascinated by the disruptive changes brought by technology and globalization, we have focused the remainder of the article on legal managed services (“LMS”) companies. These companies are corporations (not partnerships or law firms) conducting large-scale legal-support services, traditionally performed by law firms or corporate counsel. LMS companies are not staffing agencies that add temporary body count to law firms or corporate legal departments. They are stand-alone businesses whose clients are law firms and corporate legal departments. Over the past decade they have proven their ability to be better, faster, and cheaper than the traditional legal players in a wide variety of legal-support tasks (contract lifecycle management, litigation document review, M&A diligence). They have achieved this by implementing: best-in-class business processes; high-end, permanent talent in lower-cost jurisdictions; permanent task specialization and training; and dedicated technologists and cutting-edge technology.

Over the following chapter, we will discuss: the rise of legal managed services companies; the workflows, processes, and technology they employ; and the future of the legal business structure. Finally, we will touch on the benefits (yes, benefits) to law firms (even boring Biglaw firms) and what this radical change all means.

The Rise of Legal Managed Services

Axiom is based in the U.K. and works closely for clients in commercial transactions, M&A, litigation, and other areas. Axiom’s lawyers are highly trained and carry top credentials. But Axiom is not a law firm. It is a corporation that places its attorneys through insourced and outsourced solutions. Like many good companies, Axiom prides itself on operational efficiencies that are rarely found in the traditional law firm structure, like low-cost overhead, a culture of agility and flexibility, and a centralized command structure. And perhaps the great distinction is that Axiom can — and does — receive outside investment, operating formally in a way that blurs the line between business and law.

As mentioned earlier, Legal Business magazine proudly proclaimed that Axiom had breached the top 10 “legal services providers” in the U.K. Outside of Axiom, the Legal Business list of prestigious “firms” included all the usual suspects (Allen & Overy, Clifford Chance, Freshfields, Linklaters, Slaughter and May, and DLA Piper). This was the first time a non-law firm has appeared in these ranks, but it will not be the last. Legal Business noted that this breach of the coveted top 10 was “significant” and “demonstrate[ed] how non-law firm providers are winning over some bluechip clients.”[5] In our view, this breach demonstrated something else: alternative legal services providers are not just “winning” the business of “bluechip” clients but are gaining their respect and trust. Axiom has won that ephemeral prize every attorney desires: prestige.

For those that have been following the alternative legal space, Axiom is just one of many recently birthed companies fueling this transformation. Like Axiom, many of them find their heritage in entrepreneurship and investment. While Biglaw firms rely heavily on their storied history and prestige, many of the new heavy hitters were birthed after 2000. Companies like Axiom, Pangea3, Quislex, and UnitedLex are relatively new players, but are steadily increasing their headcount, revenues, and market share.

The increase in the legal market share for LMS businesses explains unusual trends in the overall legal services marketplace. The New York Times reported on detailed research into the legal market HBR Consulting, a leading provider of legal metrics. This research found that companies worldwide increased their total legal spending by 2 percent in 2014. Yet, during that period spending on outside law firms fell 2 percent.[6] Surely some of this is attributed to corporate counsel insourcing functions that were previously given to Biglaw firms. But we believe much of the work is being sent to LMS providers, which have become part of the corporate legal departments’ growing arsenal for improving efficiency. At Pangea3, we have seen a double-digit spike in demand over this time period, and we hear that our competitors have too. The legal services pie is getting bigger, but law firms’ share is decreasing.

Still not convinced? Read this year’s report published by Georgetown Law Center for the Study of the Legal Profession and Thomson Reuters Peer Monitor on the state of the legal market. That report squarely addressed how “the market for legal services has changed in fundamental — probably irreversible — ways.”[7] The report then defines “the dominant trends impacting the legal market in 2014 and key issues likely to influence it in 2015 and beyond.”[8] The report recommends that law firms need to accept, anticipate, and act on the growth in market share of non-traditional competitors.[9]

The trend is becoming clearly observable, but we are often asked why this is happening. Why, seemingly out of the blue, are LMS companies are growing so quickly, and why are they able to tackle this work better, faster, and cheaper than the traditional legal players? Part of the answer depends on circumstance and the forces creating a crucible of efficiency after the Great Recession in 2008. But a more interesting answer comes from the business world, which has always implemented project management, specialization, and technology optimization to improve quality, efficiency, and low costs. LMS companies represent the long overdue application of these practices to the law.

Legal Managed Services: Project Management, Specialization, and Technology

LMS businesses do not include providers of temporary staff augmentation or part-time contractors.

As the name indicates, managed services employ full-time professional staff, business excellence, principles, and process efficiencies, while leveraging a globalized workforce and adopting technology.

Project Management

This is where the traditional legal industry has simply lagged. For the most part, and with some modern exceptions, law schools simply do not teach project management. As a result, most of the powers-that-be in Biglaw firms simply do not know anything about project management and do not see it as a core skill their new attorneys need to grasp. Some firms are seeing the light (employing project management strategies in the practice of law), but many attorneys resist the change, protesting that bespoke, tailored legal advice should not be jammed into a predetermined workflow. It is fair for Biglaw partners to debate the merits of project management in their practice of law, which is often as much art as science. But there’s no debate that for process-driven legal tasks (large-scale contract analysis, derivative documentation, or litigation document reviews), proper workflows, and team management are of paramount concern.

In fact, as the volume and complexity of legal support work has increased (due to the exponential increase in electronic communications), managed services providers gained prominence by proudly implementing the business world’s best practices and statistical error reduction methodologies.

Methodologies such as Lean Six Sigma ensure statistically validated work and allow errors to be tracked, corrected retroactively, and eliminated going forward. These project management techniques both reduce the number of errors in large-scale legal support projects, while ensuring attorneys complete tasks in a measurably efficient and productive way. Better, faster, cheaper.

Specialization and Domain Expertise

Biglaw firms often do not hold “non-lawyers” in high regard, but LMS companies believe in that bringing legal, process, and business expertise together creates a better final work product.

For example, while Pangea3 employs well more than 1,000 full-time attorneys, we also employ and empower experts in Six Sigma error reduction (some of whom are certified Black Belts), experienced project managers, experts on financial compliance (some of whom are CPAs), and e-discovery technology experts (many who are CEDS-certified).

These differentiators drastically improve the quality of the work product and ultimately spell the difference between a traditional LPO (legal process outsourcing — think labor arbitrage) provider and a true Legal Managed Services provider (think expertise and specialization). An LMS provider can tackle more sophisticated work, such as organizing and managing the facts of your case using sophisticated case management tools, freeing up Biglaw lawyers to do what they do best: win their cases and provide legal advice.

Technology Enablement

As discussed, a key force driving the need for high-quality Legal Managed Services companies is the staggering volume of “Big Data,” and the burden and complexity of the high-volume legal-work it creates every day. Whether it’s a document review in high-stakes litigation or a review of corporate policies for the compliance department of a multinational, the stakes are high, and a critical “hot” document could be anywhere. Technology created Big Data, and it has finally begun to provide solutions to the Big Data problem. However, Biglaw firms and corporate legal departments rarely have fluency with the rapidly changing technology solutions such as machine learning and data analytics. These are rare skill in the traditional legal field, but are standard offerings for LMS companies.

Quality LMS providers possess this expertise and employ capital and human resources to ensure they remain on the cutting edge. They are able to wield advanced technology with efficiency and good judgment, and can typically consult traditional lawyers on the right tool for the job at hand.

This again allows attorneys to maintain their primary focus on the traditional practice of law.

Accordingly, firms are able to decrease the total cost of representation, while maintaining the quality clients expect from their trusted outside counsel. With the same tools, but in the right hands, the individual lawyer is able to maximize time spent on important legal issues.

Future Reforms in Legal Business Structures

Speaking of the practice of law, in the United States, legal practice is highly defended and protected from “non-lawyer” interlopers by the ABA and state-bar associations. Non-lawyers cannot share profits with lawyers and law firms cannot sell equity stakes to business professionals. A non-lawyer engaging in or profiting from legal practice will be punished, and hours of scholarly debate focus on when lawyers are or are not providing “legal advice.” Originally intended to protect the objectivity of counsel from conflict, in the modern legal practice, this prohibition may have become more harmful to the consumer of legal services than good.

In the U.K. and some other jurisdictions, things are changing fast. By defining and dividing out specific areas of practice, the new U.K. laws encourage more competition from “non-lawyers.” Critically, the U.K. now allows for a new structure of law firm called alternative business structures (“ABS”). Critically, ABSs allow non-lawyers to sit in professional, management, and even ownership roles. In the past few years several large consulting and professional services companies have obtained ABS status — including KPMG, BT, and PriceWaterhouseCoopers.

In our view, this simply makes too much sense to ignore. Shouldn’t estate planning, for example, involve experts who provide tax and accounting insight alongside legal advice? Shouldn’t high-volume discovery matters also include e-discovery technology and IT consulting? Why don’t technology consultants include IP attorneys and their wisdom in their offering? Wouldn’t clients benefit from HR consulting paired with labor and employment legal practices? ABS entities will begin to create these innovative, integrated legal/business offerings and compete globally for the business of multinational companies. We struggle to see how they do not end up claiming market share in the States and “arguably open the world to legal services providers.”[10]

The American Bar Association (“ABA”) has investigated this in the past, but even small steps in this direction were halted. Given the pressures, however, and the enormous potential for innovation and profit, incremental steps forward are anticipated by many. In the meantime, LMS providers will play a big role in bridging this gap and allowing U.S. Biglaw to compete. We foresee future partnerships between Biglaw and LMS providers to be a necessary interim step until our laws are liberalized.

Legal Managed Services: Benefits for Law Firms

If LMS companies are eating into Biglaw’s market share, it would stand to reason that they are natural-born competitors. After all, it was not long ago when outside counsel collected virtually all fees related to representation — from legal research, to long-distance telephone calls, to document review, to closing arguments at trial — as revenue to the law firm (even with some of those costs as pass-through).

Today, with technology startups, and LMS companies on the scene, law firms are seeing revenue from traditional legal support tasks departing coming off their books. And the Biglaw firms are perceiving this “threat” from LMS providers: according to a recent survey, 68 percent of respondents from large firms believe that non-law firm providers of legal services are either presently taking their business or pose a threat to do so.[11]

We respectfully disagree. If leveraged correctly and incorporated as part of a larger strategic approach, the deployment and integration with LMS companies can result in new business lines, market advantages, and increased job satisfaction resulting from an increase of the actual practice of law.

Project Management is Not What Lawyers Signed Up For

Today’s law firm attorneys are asked to do the impossible: handle increasing workloads and increasing the quality of work, while somehow simultaneously lowering the total cost of representation and improving overall profitability and margins. These tasks are not easily achieved in any industry, but they are particularly difficult within the constraints of the traditional law firm operating model. This model (the traditional pyramid) includes costly physical overhead and personnel, a culture of following precedent, and a decentralized command structure.

Ultimately, legal managed services present two major advantages. First, managed services can free up law firm associates to spend their time on the most complex, outcome-determinative work, allowing them to achieve better results for their clients. Second, they allow firms to be agile and create value within a new reality. As a result, firms can become more competitive, winning new clients, and increasing profits on work with existing clients.

Lawyers Actually Practicing Law Again

Working strategically with LMS companies can help top firms improve their ability to recruit, train, and retain the world’s top legal talent by sending a clear signal to the marketplace that a career at their law firm will not revolve around years of inefficient document review or other high-volume, repetitive (but important) work. Furthermore, attorneys in such firms will more quickly develop their skills in the traditional practice of law, including oral advocacy, witness preparation, and legal writing. Associate morale can improve by reducing the tremendous cost of a revolving door, and increased retention also improves the ROI on training associates on the firm’s practice.

A Competitive Edge

Law firms can also deploy managed services to create a competitive advantage. In an RFP or fixed-fee scenario, the firm presenting the lowest overall price tag on representation will often have the winning edge. If deployed correctly, partnering with an alternative services provider can give law firms a competitive advantage in attracting new clients.

Research shows that the vast majority of firms continue to face price competition, despite the recovery in the overall economy. Moreover, many are adjusting their pricing strategy by integrating fixed rates whereby the risk of cost overruns is born exclusively by the firm. Future-focused firms are getting creative, pairing alternative fee arrangements with outsourcing, and advanced technology. And it’s working: They are winning business with a lower cost solution, while still maintaining non-discounted rates.

For smaller firms, the support of managed service providers can be a game-changer that can level the playing field when competing with their larger rivals. Today, small- to mid-size firms with lower headcounts are better able to compete for big, bet-the-company matters, because engaging with high-quality LMS providers allow them to scale up with professional staffing without increasing overhead.

Conclusion

Despite all this action, the focus of the mainstream legal media still remains fixated on the AmLaw 200 and their always-exciting profits per partner (“PPP”) numbers. This boring narrative misses the most dynamic and disruptive area of the industry, and we hope you continue to follow this story on Above the Law, as we at alt.legal follow the disruptors working hard to make the legal system work better.