You Need Lawyers to Draft Dox or Go to Court — But Prevention of Legal and Regulatory Trouble Requires Systems and Cost Disciplines (Part I)

Seth Godin’s blog post today — “The other kind of customer service” — offers an outlook pretty much foreign to the legal industry:

“Reactive customer service waits until something is broken …

“Perhaps we ought to spend more time being proactive.

” … Guiding the process so that most disappointments won’t even happen, which means we won’t have to fix them …?”

For most law firm and in-house counsel this does not compute:

This isn’t to deny that lawyers render lip service to “preventive law”. But preventive law is not where the money is — and it’s not how most business lawyers view their jobs.

The legal industry is driven by the billable hour — and by the hiring of less experienced lawyers to bill even more hours in the pursuit of “associate leverage” (here and here).

But what about in-house lawyers? Don’t their incentives align with their employers’?

No — they tend not to do systems thinking and cost control.

For starters, almost all in-house lawyers began their careers as law firm attorneys. They’ve long since accepted the waste embedded in the law firm business model.

But the main reason lies deeper — it’s how in-house lawyers view themselves and their roles.

Casey Flaherty — a lawyer who advises corporate legal departments on their effectiveness — puts it this way:

“There are few discernible differences between the modal in-house lawyer and the modal law-firm lawyer … they value the same thing: lawyering …

” … Lawyer time is the primary resource and the primary unit of measure … Resources (lawyer time) allocated to sequential, individual legal tasks: this question, this contract, this motion.

“Systems thinking and relative reductions in demand for legal labor … are ancillary concerns to be addressed when convenient or absolutely necessary (that is to say rarely).”

What does this mean for intentional, planned — proactive — avoidance of legal and regulatory trouble? What does this mean for meaningful cost control?

It means that business has to look some place other than law firms and in-house lawyers.

Consider Jeffrey Carr — General Counsel of FMC Technologies. He systematically prevented liability (see post here with three videos about his methods) — and between 2002 and 2013 he reduced total outside fees and in-house costs from $14.3 million to $9.5 million — amid a 4X increase in his company’s revenues!

Notably, before his accomplishments at FMC Technologies — Carr was a P&L executive with his own business.

Or consider Kenneth Grady — first a partner with the Seyfarth Shaw law firm and then general counsel at three Fortune 1000 companies before founding SeyfarthLean to apply Toyota’s “lean” methodologies to the legal and regulatory function.

Notably, before bringing “lean” practices to law — Grady had been a P&L executive — holding executive positions in operations management and administration.

In my career, systematic prevention and cost disciplines didn’t mean a lot to me for my first decade of law practice. It took my assumption of general manager duties to un-learn what I thought that I “knew” about business’ legal and regulatory needs.

The legal system’s demands proliferate relentlessly. But the legal industry’s total charges to client companies never go down — and they usually go up by single-digit percentages.

This is a direct result of what Casey Flaherty described: “Sequential, individual legal tasks … this question, this contract, this motion”.

Meanwhile — for the last few decades — the rest of us have been reengineering, cost-cutting, and constantly improving. When I was an executive at GE it was Six Sigma. Others implemented the Toyota Way.

But virtually no one with general management duties was able to sit this out.

Businesses need advisors with both lawyer skills and P&L experience to design and implement systems to avoid liability and management disciplines in the legal and regulatory function.

And that means enlisting help from among the few lawyers who’ve both applied systems thinking and cost disciplines firsthand — and drafted documents, gone to court, or advised clients.