On bringing to Legal the same cost, staffing, and technology disciplines that apply everywhere else in the business enterprise — other than Legal — cooler heads have emerged. But they have not yet prevailed.
Many lawyers still blow litigation dangers and regulatory peril out of proportion to their real magnitude and immediacy.
Hit them in a particular mood, and they will advise executives — actually, they will threaten them — that cost efficiencies in the management of legal risk will court business catastrophe.
In my experience as an executive, such overreaction is more common in the legal profession’s interaction with business clients than less dramatic, practical judgment.
But there are some cooler heads out there, and they have ideas that are useful in differentiating between legal tasks.
Just last week Bruce MacEwan, and his two partners in a consultancy to law firms called AdamSmith, Esq., began a series on what’s called “segmentation” of law firms.
On Saturday morning (January 11, 2019), I glanced at the front page of the Wall Street Journal that I held in my hand as I walked up the driveway to my house:
“MAX Chatter at Boeing Undercuts Its Public Stance”.
The first line:
“Striking internal messages released this week by Boeing Co. have undercut many of the plane maker’s defenses of its design and marketing decisions for the beleaguered 737 MAX jet.”
In the words of the Dallas Morning News:
“Boeing employees knew about problems with flight simulators for the now-grounded 737 Max and apparently tried to hide them from federal regulators, according to documents released Thursday.”
Of course, what’s most important here is the tragic fact of two crashes immediately on take-off, less than five months apart, and the deaths of 346 people. But along with profound human loss are this catastrophe’s devastating legal consequences for the Boeing Company.
And these legal problems posed by release of these documents arose before any attorney became involved with the acts, omissions, and representations to Boeing’s customers and regulators that those documents describe.
The legal profession, for the most part, does not emphasize prevention.
After 12 years running two divisions at Whirlpool Financial, and then as an executive at GE — and having been a business lawyer before that, and thereafter — I have reached this conclusion:
Protecting the business from legal risk should be entrusted mainly to management — with attorneys accountable to the CFO, COO, or some other P&L executive in a supporting role.
This goes against the legal profession’s prevailing outlook; and corporate practice has long conformed to that outlook:
“Management of legal risk is a job for lawyers”.
But that outlook fails to prevent legal problems; and it leads to ever-increasing legal spending.
The legal profession as a whole tends to resist adoption of new technologies that can save on lawyer time and enhance the accuracy of work product.
This is because the legal profession’s prevailing business model is based on the following:
- Hourly billing, rather than pricing according to the task performed;
- Multiply the lawyers assigned to a task; and
- Assign recent law grads to do legal research and document review —training junior lawyers on the client’s dime.
But there are exceptions.
Consider Salazar Law, a boutique commercial law firm, founded by Luis Salazar, who practiced bankruptcy law for over 15 years as a partner at a large and prestigious international law firm.
He says this about why his firm adopted ROSS Intelligence — an artificial intelligence-driven legal research platform:
” … We were still practicing law … in the same way that we’d practiced for a hundred years, the same way Charles Dickens had written about it ….
“We really wanted to establish a new law firm that took advantage of new technology ….
Conventional law firms working to their profession’s prevailing business model — with its various forms of built-in waste — often claim to have a “customer focus”. And the in-house law departments who hire these conventional law firms may make the same claim.
But creating waste — or tolerating that waste by paying the bill for it — is not consistent with any meaningful “customer focus”.
Most everyone — in any kind of business or nonprofit — says that they work from a “customer focus”.
Recent business management literature is full of articles that tout the primacy of the customer: “6 Ways to Build a Customer-Centric Culture“, Harvard Business Review, October 2, 2018; “Why Your Customers Should be Central to Your Innovation Efforts“, Strategy + Business, August 13, 2019. “Customer Centricity in the Digital Age“, MIT Sloan Management Review, May 30, 2019.
The legal profession is just as outspoken in its claimed embrace of the customer — or, as they like to put it — the “client”: “7 Habits of a Client-Focused Lawyer“, The American Lawyer, August 10, 2018; “8 Ways to Create a More Client-Centric Mindset at Your Law Firm“, JD Supra Perspectives, March 20, 2018; “Keeping a Firm Client-Focused During Changing Times“, Forum (Legal Executive Institute), September 3, 2015.
My most recent post — about a December 17, 2019 article entitled “10 Ways That Outside Counsel Disguise Overbilling” — cited a case where an expert in auditing law firms’ bills for inaccuracies found this:
“The law firm charged 5.1 hours for work on a confidentiality agreement where opposing counsel had already provided a comprehensive draft agreement for comment and markup … This time is excessive. We propose the charge be reviewed to a total of 2.5 hours: 2.0 for analysis and markup of the draft agreement, and 0.5 for negotiation of points with opposing counsel.”
The legal bill auditor’s point: This law firm charged 5.1 hours times the attorney’s billing rate for a task that should have consumed half of that.
But I saw another point:
What’s any lawyer doing consuming 5.1 hours in creating a confidentiality agreement? Or consuming even half of that?
5.1 hours might have been justified. I’d need to know more in order to make a definitive judgment.
A lawyer charging a client for 5.1 hours — or even 2.5 hours — to conclude a “confidentiality agreement”, is a big … red … flag.
Headline of a December 17, 2019 article in Corporate Counsel, a prominent publication directed to in-house lawyers.
Citing the Association of Corporate Counsel’s findings in its “2019 Global Legal Department Benchmarking Report”, the article begins with this statement of fact:
” … Large companies with big legal departments go over budget by about 37% every single year.
“Why do they go over budget? A big reason is overbilling from the outside law firms they hire to do work for them.”
Cost overruns of that size.
And inaccuracies in charges imposed on clients by people who serve as fiduciaries (attorneys) to the clients harmed by those inaccuracies.
Inaccuracies that advantage those outside firms — not ones that result in under-charges.
How did this become business as usual? How can it be that such overruns and billing inaccuracies are normalized?
What’s so wrong with this area of Legal — outside lawyers’ charges to client companies — that the article’s author, Ryan Loro, can be part of an entire industry — “legal bill auditing” — that checks up on the accuracy of what lawyers bill their clients? And gets paid solely from the excess of what law firms charge over what they agreed to charge (i.e., no net cost to the client)?
This morning The Boeing Company announced that Dennis Muilenburg had resigned as its Chief Executive Officer.
This follows the loss of 346 lives in two separate crashes in 2018 and 2019, and allegations that Boeing had withheld from FAA regulators, and from airline customers and their pilots — vital information about hazards inherent in the Boeing 737 Max 8’s autopilot system.
This morning’s announcement from Boeing:
“Under the Company’s new leadership, Boeing will operate with a renewed commitment to full transparency, including effective and proactive communication with the FAA, other global regulators and its customers.”
- Automate as much as possible of the otherwise clumsy, slow, and (traditionally) manual process of creating and negotiating contracts;
- Then automate use of those contracts’ terms to execute what you agreed to do for your customers;