Watching Fireworks on the Fourth:
Coney Island, 1962
[Courtesy of Magnum]

This is a column about wringing our hands.

Our first text, from the Old Testament conventional debate, stems from today's WSJ story on "Axiom Legal," headlined Newcomer Law Firms Are Creating Niches with Blue-Chip Clients, discussing the business model of Axiom and other firms, which is to provide highly credentialed attorneys to corporate law departments on a contract or project basis, typically at savings of 25-50% vs. what an AmLaw 100 firm would charge.   Other components of the model are:

• The lawyers are recruited very very selectively—about 1 in 100 applicants to Axiom gets hired, according to its founder;
• Their pedigrees need to be gilt-edged, with backgrounds from places such as Cravath, Simpson Thacher, and Davis Polk;
• Work is typically performed directly at the client's, or the lawyer's home office, drastically cutting real estate overhead; and
• Axiom lawyers are provided benefits whether or not they're working on a particular engagement, but obviously only get paid for work performed.

Firms such as American Express, Cisco, Deutsche Bank, GE, Goldman Sachs, Morgan Stanley, Sun Microsystems, UBS, and others, have signed up and Axiom's revenue was $39-million 2007 and is "on pace" to be about $66-million this year.  So, yes, it's a real business, even if it will never be an existential threat to BigLaw in the complex deals or litigation.  Stuart Popham of Clifford Chance puts it nicely:  "Clifford Chance has always been at the forefront of developments in the legal world and welcomes innovation, but does not see it as a threat, nor as a challenge."

So what's the problem?  What's the conventional wisdom about this?

For that, we go to the source for the voices of the anonymously-empowered cranky observers who comment over at the WSJ Law Blog.  Herewith a sampling from the piece covering the Axiom story:

• For all the prancing and hot air, they’re still just another temp agency peddling flesh that didn’t cut it on the most grueling track. An unfortunate and painful fact of life is that excellence in the performance of legal services can’t be delivered by dilettantes. People with “other interests” — whether it’s playing with their kids or writing an opera — may very well be healthier and more interesting people than those who wed their souls to the inhuman demands of private law practice. But they are not going to be as good lawyers. There is always a market somewhere for less-than-excellence at a discount price. Temp firms like this one serve it. But please, enough about the “special” quality of their inventory.
  
  
• It is fascinating that, yet again, the perception is voiced that unless one is willing to work ridiculously long hours and bill exorbitant rates, (not to mention in expensive suits and behind mahogany desks) that the resulting work product is not good. Says who?
  
  
• This [article] highlights a mindset in the legal market which consistently causes larger corporations to pay exorbitant premiums for legal services of questionable quality. However, it ignores that “pedigree” and large firm experience are not reliable indicia of quality touches on a demonstrable fact that is largely ignored by the legal market…

  That salient fact being that at most large law firms, in the first several years of practice, the only experience that associates receive is doing work that could be handled by a competent paralegal or secretary. Moreover, in large firms, the billable hour and marketing requirements generally mean that the amount of quality mentorship conducted between senior attorneys and those highly compensated young lawyers who are mostly engaged in doing the work of a clerk typist is minimal.

  By contrast, in a small firm environment, the working relationship between partners and associates tends to be very close, with ample opportunity for supervision and mentoring. Further, opportunities for all manner of legal tasks come to associates much more quickly. The natural consequence is that after six years of practice, an attorney whose lack of pedigree limited her options to small firms is likely to be a much more polished professional with significant amounts of meaningful experience in the actual practice of law. By comparison, after six years in a megafirm, the associate is likely to be paranoid, jittery and harried from the toxic work environment, while having very little meaningful experience in the actual practice of law.

• There certainly are “bet the ranch” matters out there that warrant elite law firms. But 99.99% of what big law firms deliver is overpriced. These guys have identified a nitch [sic: niche] that is waiting to be filled.
  
  
• Axiom’s model works if you assume all Axiom projects will have plenty of lead time for staffing, have discrete start up and wind down dates, will keep the lawyer fully utilized during the project term, won’t morph into additional projects, won’t have intermediate deadlines that require late nights or weekends and won’t require supervision or input from other practice areas. If this was realistic, no one would ever leave big law. It’s the lack of control that causes stress, and once you have all of these variables in play, it’s going to be the same no matter what sign is on the door.

What exactly is problem these commenters—and the existence of Axiom to begin with—are highlighting?

I submit it's an inability, or at least a failure, of clients to measure quality of legal services.  With no real handle on what's extraordinary work, what's acceptable work, and what's unacceptable work, clients buy the "proxy" of prestige firm, law school pedigree, and, yes, high hourly billing rate. 

Axiom is attempting to perform arbitrage on that market by promising the gilt-edged pedigree (erego the 1 in 100 hiring number, which sounds impressive regardless of its statistical integrity), without the prestige firm name and without the eye-opening hourly rates.  As an admirer on general principles of firms that try to find localized market failures and capitalize upon them, I am glad to see Axiom evidently successful and growing. 

On the other hand, it strikes me they have not addressed the core market information failure, which is clients' consistent and nearly universal inability to assay quality of their lawyers.

Back in February, Steven Pearlstein wrote a column called Failure in Need of a Theory in The Washington Post (online version now only available for $$), positing the following:

"I'm wondering if we need a new theory of relativity for economics, where the standard models are unable to explain a growing number of situations where highly competitive markets are delivering less-than-optimal results.
The recent credit bubble is one example of a very big market failure for which we all will pay a serious price. But other, smaller failures also come to mind.
Think of skyrocketing tuitions among elite colleges and universities that spend lavishly on winning sports teams, rock-climbing walls and scholarships for those who don't even need them, all to attract top students.
Or the runaway compensation for chief executives who would be willing to take the job for half of what they are being paid.
Or the ridiculous prices paid for "it" handbags, fancy watches or houses in the Hamptons.
How do we explain why cities are still tripping over themselves to offer subsidies for baseball stadiums and convention centers in the face of overwhelming evidence that these diminish economic efficiency and welfare rather than enhance them?
And how is it rational that first-year associates at top law firms are paid more than federal judges? ...  And how many law firms have sacrificed the quality of their work and the collegiality of their culture to improve their profit-per-partner, the all-important metric in the annual American Lawyer rankings?" [Emphasis supplied]

Mr. Pearlstein fingers the culprit as "relative competition:"

"One thread that runs through all these "market failures" is that they involve a kind of competition in which "winning" is more a relative concept than an absolute one -- that the goal is not so much to maximize profits, income or welfare, as economic models assume, but to beat the competitors. In the process, perfectly rational investors, businesses or consumers wind up doing things that are irrational, leaving them no better off than before.  ...  The desire for ever-bigger homes, ever-fancier gas grilles, ever-more powerful SUVs is based not on some absolute notion of what is good or sufficient, but rather on the relative basis of what everyone else has.  ...  [As] Chuck Prince, the former Citigroup chairman, who famously gave this explanation last July for why Citi was continuing to lend aggressively into what everyone could see was a credit bubble: "As long as the music is playing, you've got to get up and dance.""

Now we're getting somewhere.

AmLaw firms seeking to confirm their prestigious status (or aspiring thereto) cannot compromise on matching the "going rate" for associates, or on the pedigree of law schools they draw their partners and associates from, nor (once the overhead expenses associated with those decisions have been assumed) on their hourly rates.  They can't compromise not because it's purely rational homo economicus behavior:  No, the reason they can't compromise is because none of their peers is compromising.

But we still haven't broken the "quality" code.

Our second text, from The New Testament a Fortune 500 law department, tries to do just that.  In an email I received earlier this week from Jeff Carr, GC of FMC Technologies (granting me permission to share it, by the way), he writes:

"Bruce – interesting exchange on egos’s, capitalism and win ratios as opposed to P3 (profits per partner) data.  Here at FMC Technologies we maintain that the best and most effective way to approach this issue and to align divergent interests with performance and value is to use a performance based pay system.  Nearly 100% of our engagements are on one of two models.  The most simple, and the one that would in our view address your points as well as those of your interlocutor, is the “report card system.”  We directly tie compensation to evaluations – firms receive between 80% and 120% of the amount billed based on how they do on 6 criteria.  Our evaluation form and fee calculator is attached. 

We have over 1000 attorney evaluations in our own database and we are very disciplined in performing the evaluations and delivering the results to the firm – indeed we stack rank our firms with the other firms.  If you want to increase performance and customer satisfaction, all one needs to do is to unleash the competitive instinct of a bunch of smart, overachievers, tell them that they aren’t at the top of the heap compared to our other legal service providers!  Our experience with this system yields demonstrated results – firms are making more than 100% of their invoice (on average) and our total legal costs are static absolutely and down as a percentage of revenue.

If we in-house folks started to aggregate customer focused evaluation data, we would create a very powerful and very real assessment of attorney and firm capability, effectiveness and value."

Here's a screenshot of the evaluation form:

On a 1 to 5 score, from unacceptable through mediocre, good, and very good to excellent, the criteria are:

• Understood client's goals
• Expertise
• Efficiency
• Responsiveness
• Predictive accuracy (about budget and results); and
• Effectiveness.

Then there is the uber-question:  "Would you recommend that we use this attorney/firm for similar work in the future?"

But wait, there's more. 

In its one-page, plain English "Covenant with Counsel," FMC specifies additional conditions and expectations.  Among the more fascinating, FMC will:

• Organize and participate in “after-action” reviews at the conclusion of each matter to help us continuously improve performance
• Be flexible, accommodating and creative in dealing with potential conflict of interest issues that may arise
• Provide training opportunities for your associates through short term secondments or other creative arrangements
• Understand that this relationship is built on mutual trust and that by eschewing a “no stones unturned” approach, we accept some risk.

And the Firm will:

• Bill you fairly and understand that you seek neither education, elegance, new law, nor perfection unless these provide value consistent with your company’s objectives.
• We will always seek simple, effective solutions
• Seek to reduce our costs creatively and constantly and share those savings with  you while also increasing our profitability
• Not ask for blanket conflict waivers and be responsible to bring actual or potential direct, client or issue conflicts to your attention
• Exploit technology to our mutual benefit.

In other words, FMC establishes specific performance criteria for its outside firms, evaluates their adherence to those standards discipline, and rewards firms that excel (and punishes those that fall short) by specifying up front that the final fee may be from 80% to 120% of the estimate.  As Jeff summarizes (my emphasis):

"It's not rocket science, it just takes discipline.  If you pay for hours, you tend to buy hours regardless of quality and effectiveness.  If you reward performance, then your firms will perform."

Start thinking creatively (BigLaw and F500 firms, I'm talking to all of you) about what "quality" in legal services really means.

Enough with the hand-wringing already.

Knowledge @ Wharton has an enlightening interview with William Weldon, CEO of Johnson + Johnson, on the challenges of leadership in a decentralized company.   You may think the scale of J&J (120,000 employees, $61-billion in revenue, operations in dozens upon dozens of countries) means there's no analog between what he does and what you do, but I think his insights into how you manage a fundamentally decentralized organization harbor valuable learning for law firms.  If you're inclined to agree, read on.

First, a word about the analogy between J&J and a large law firm—whether or not you're international.  Your offices, practice groups, and even individual client teams operate with a very high level of autonomy, certainly by the standards of corporate America.  That's why I think it instructive to listen to someone as thoughtful as Weldon talk about leadership in that context, where the sheer fact of J&J's over 200 operating companies means they'll be operating autonomously:  Even if he devoted a full day to each operating company, it would take him the entire year to cycle through all of them before starting over.  Is, then, running such an enormous organization fundamentally impossible or impracticable?  Not at all; he sees advantages to it.

"I think there are pluses and minuses to decentralized and centralized. I think J&J is probably the reference company for being decentralized. There are challenges to it, and that is you may not have as much control as you may have in a centralized company. But the good part of it is that you have wonderful leaders, you have great people that you have a lot of confidence and faith in and they run the businesses.

"If you look at Japan, for example, we have the local management running the companies. They understand the consumer, they understand the people they are dealing with and they understand the government and the needs in the marketplace. Whereas it's very hard to run it from the U.S. and to think that we would know enough to be able to do this. [...] But, with our credo and the value system that we work under, we feel very confident about our leadership and our management -- and you have to have trust and confidence in them.

"I think the other thing that decentralization does is that it gives you a tremendous opportunity to develop people. You give them a lot of opportunity to work in different areas, to work in smaller companies, to make mistakes and to ultimately move to larger companies."

There's much in here.  Listen again:

• You sacrifice control but you gain great people, who develop into leaders, assuming you have "a lot of confidence and faith in them."
• You get your operations closer to the ground, closer to the customer, and for that matter closer to the regulatory authorities.
• But—and this may be challenge #1 for law firm leaders—you have to be realistic about ceding control and realistic about people "making mistakes."  (Don't tell me you never made a mistake in all your career?)

And also listen to what he has to say about mistakes:

"The challenge really... I see it as a great benefit, rather than a challenge. This is because the problem with centralization is if one person makes one mistake, it can cripple the whole organization. This way, you've got wonderful people running businesses. You have to have confidence in them, but you let them run it -- and you don't have to worry about making that one big mistake."

In the current environment, haven't we seen firms that have made "one big mistake?"  Betting bigger and bigger on markets just as they were becoming frothy?   (Or, in the previous dot-com downturn, betting on Northern California at the top.)

Perhaps the supreme and ongoing challenge for J&J is maintaining the pace of innovation.  Law firms don't face this to the same degree, but I believe inventing new legal forms (new types of financing vehicles, for instance, or creative new covenants) is one of the few ways firms have to create an enduring impression in clients' minds that they are not only unlike their peer group but unlike their peer group in a most admirable and "unlawyerly" way:  They're legal entrepreneurs.

How does Weldon describe how J&J pursues innovation?

It starts with decentralization:  "Where decentralization helps in innovation is that it allows different people with different skills, different thoughts, to bring together different products and technologies to satisfy the unmet needs of patients or customers."  Not that it's without its challenges, and they are the familiar ones of expense (which is highly manageable if you believe in this), but more importantly the challenge of getting people to, even briefly, let go of the familiar (emphasis supplied):

"It's the ability to work across the boundaries that really brings true innovation, and is going to take some real breakthroughs and will bring real breakthroughs in the future. But, it also does take some coordination and some sacrifice from the individual. That is the toughest thing, getting people to get outside of the silos that they work in and work across the groups."

Yet isn't this precisely the way innovation works? The most famous legal innovation of the past couple of decades, Marty Lipton's poison pill, arose at the intersection of newfangled, gunslinging, hostile M&A and plain old Delaware corporate law.   Securitization (which will return—make no mistake) was initially a sort of weird child of banking regulatory law and bond indentures sprinkled with pixie dust.

What then might we do?

• Don't be afraid to set people free, even to the point of making mistakes. Even the most quality-obsessed companies in the world (Lexus, for example) recognize that defects are a fact of life.  "Zero defects" is a recipe for paralysis.  The question is not achieving zero but dealing constructively with defects that arise.
• Prod people to get out of their comfort zones and work—at least episodically—with other practice groups or other offices.  Barrels of ink have been spilled on how "Creative Companies" (IDEO, Apple, Google, et al.) ensure that employees run into people outside their group or function all the time—typically with something as simple as architectural design and layout of the offices.  Next time your firm is planning a move, you might interview a designer who has created spaces like these firms have.
• Finally, understand that letting people expand into their own leadership roles will only happen if they have a functioning ethical and professional autopilot.   Recall what Weldon said at the start of his conversation: 
  
  "[B]y being decentralized; what you do lose is control. But, with our credo and the value system that we work under, we feel very confident about our leadership and our management."

The key phrase is "with our credo and value system."  Is that something you can say with equal confidence about your firm?  The Johnson + Johnson Credo (crafted by Robert Wood Johnson in 1943 just before the firm went public) is a vibrant document today.   Whether or not your firm has anything similar written down, do your partners, associates, and staff live your firm's values?

Because if they don't, decentralization is not a workable option for you.

Late last week Northwestern University Law School in Chicago announced an "Accelerated JD" program, compressing the same 86 credit hours earned by traditional three-year JD students over the course of six semesters into five semesters over two years.  The compression of credits results from a combination of starting in the summer, taking extra courses each semester, and picking up credits through mini-courses between semesters.  (Students will start classes in May and graduate in May, two years on.)

But the real story has very little to do with compressing three years into two:  It has to do with a fundamental re-thinking of what a legal education entails.  The other components of the accelerated program include:

• A limit of 40 students in the first class, rising to 65 in subsequent years;
• A requirement that each individual applicant be interviewed;
• A requirement that they have at least two years of "substantive work experience" under their belts (sounds as though backpacking across Europe and Asia on your trust fund developing your "foreign language and cross-cultural sensitivity skills" wouldn't cut it); and
• Most importantly, the inclusion of two new and one existing course as new requirements.    As the NWU press release puts it:  "The two new courses would be devoted to quantitative analysis (accounting, finance and statistics) and the dynamics of legal services behavior (involving social networks, teamwork, leadership and project management); the other course focuses on strategic decision-making (improving students’ ability to understand the strategies pursued by their clients and organizations)."  The point of this, to paraphrase Northwestern Law's Dean, David Van Zandt, is to help prepare students for the way lawyers actually work today.

No sooner was it announced than it was denounced.  Perhaps this shouldn't be surprising, as Van Zandt noted with a slight air of resignation:

"Van Zandt said he expected some criticism. "Any time you innovate, you are always going to have people who pooh-pooh it or look down their nose," he said. "Law and legal education is tremendously conservative.""

What type of denunciation?

"University of Chicago professor and former dean Geoffrey Stone called the two-year program "irresponsible" and said it risked producing inferior lawyers who haven't had time to develop intellectual and analytical skills.

"My sense is that compressing the educational process is likely to seriously derogate from the quality," he said. "What is lost is likely to be much more than anything that is gained by hustling the students through more quickly."

And this:

"University of Illinois associate dean Lawrence Solum said students in a two-year program would have less time to explore career opportunities during the summer.

"Law school is already an extraordinarily intense experience and my gut instinct is that cramming it into fewer weeks and months is not likely to improve the quality of the education," he said. "If anything, law students already are doing too much in too few hours."

And—quelle surprise!—the commentariat on Above the Law and the WSJ Law Blog were, admittedly with exceptions, rambunctiously dismissive.  For example:

• Let's get this straight. The new two-year program would ...

  1. Cost the same;
  2. Allow no breathers between semesters; and
  3. Make it harder to find a full-time job at a big firm.

  If NW really wanted to be innovative, they'd make their third year optional.

• Wow. Just when I think I couldn't be any more ashamed of my Northwestern Law degree, they go and do something like this. Way to dilute whatever value a NW degree has and turn law school into a vocational school in the manner of any number of unaccredited California TTTs. Jesus.

• This is just another way for Northwestern to cheat on the US News rankings. Just like some law schools admit students into their night programs so they do not “count” in US News, NWU will admit students into the “short program” who will not get counted against NWU in the rankings. Free money from 50 below average students without the threat of sinking in the US News rankings or the faculty revolt from having an onerous night program. Great idea.

You get the idea. 

And the "exceptions?"  Those who had something positive to say.  They tended to be, excuse the phrase, adults.  For example:

• This is not a new idea. Back in the sixties, I came out of the Army and immediately began a 27 month law school curriculum at the University of Michigan, starting in June of one year and ending in an August 27 months later. Most of my colleagues in this program were a little older than the students in the regular, full 3 year program, having, like me, done a stint in the military or worked a few years after college in some sort of job. In fact, most of them were already married. [...] When I left law school, I joined one of the large first tier law firms, and I was a distinctly odd man out, because my peers at the firm finished the bar exam half a year before I did and had also enjoyed the work and bonding experiences of a summer together as interns. Still, I felt that the advantages accruing to me overall outweighed these disadvantages. For one thing, a space of several years between college and law school resulted in my being more mature when I started law school and, I think, made me a far better law student. (By my last year of college I was a real goof off, and might well have failed out of law school if I had gone there straight out of college. This is exactly what happened to a good college friend of mine.) And of course, as others have noted above, I basically gained back a year of time lost in military service and picked up an extra year to work and make the big bucks in my chosen profession.
• I totally agree with you. As an Iraq vet, it was beyond excruciating to watch another 3 years drain away sitting in a library - especially when I got little out of it. I don’t think the last year of credits is worth anything at all, intellectually. It would be better to implement a two year program, and then maybe add an optional third year that allows law students to do each semester as an externship somewhere - that way they at least get some practical experience.
• This is a visionary experiment, as is the experiment now going on at Washington & Lee. Bottom line: the three-year model is unnecessary and all the power behind it — the ABA and the AALS in particular — cannot stop the momentum behind a two-year law school curriculum. In two decades, it will be gone.

Clearly, Van Zandt intends to make Northwestern distinctive.  Referring particularly to the two new courses in quantitative analysis and in social and emotional skills, he says:

"For us to be successful, we have to be producing students that the rest of the world wants. Just producing people who are great at legal analysis, they are a dime a dozen out there now," Van Zandt said. "We are trying to differentiate our students in a way that is positive."

Earlier today I had a chance to talk with Dean Van Zandt and learned quite a bit more about the impetus for the program and its background.  Here's what I learned from him.

He's been in his post for over a decade and when he started he decided to undertake a comprehensive review of the law school's plans. The first step was to start looking for applicants with substantial post-college work experience, and a second step was to become the first major law school to conduct interviews as part of the admissions process. He reports that this past year they interviewed 75% of their 4,500 applicants, a substantial investment in manpower and time (although alumni can help with some of the off-campus interviewing). As for work experience, the incoming class stacks up as follows:

• 95% have worked at least one year after college;
• 82% have worked two years; and
• 58% have worked three years or more.

When they started this effort, the Dean assumed that they'd have to compromise on academic quality and be willing to suffer a small decline. But the opposite has turned out to be the case. From the time they started the "work experience" program until today the average LSAT has gone from 164 to 170, a greater increase than that of any other law school during the same period.

Another surprising benefit was to get more applicants coming from the East and West coasts. The Dean explained the dynamic this way: "Normally, aspiring law students will apply to Harvard, Yale, Stanford, and then some 'safe' schools nearer to home. In the Midwest, that often meant us, Chicago, maybe Iowa and Indiana, whereas in the East it would be Columbia, Penn, NYU, and in the West Berkeley, USC, UCLA. But by differentiating ourselves on the work experience parameter we find students outside our home territory are now applying to us."

A key part of the program, and the part of greatest interest to me, is the changed curriculum. It now focuses on six fundamental competencies that Northwestern has decided are of critical importance to its students (more on how these competencies were identified in a moment):

• project management and leadership;
• teamwork;
• strategic understanding of the client's business and organization, as well as how people in organizations make decisions and how they navigate organizations (in this the law school is greatly aided by having Kellogg Business School professors teach the basic strategy course);
• basic communication skills, including:
  • basic exposition;
  • training in formal legal writing and legal analysis;
  • contract drafting; and
  • business exposition, meaning how to take your recommendations and analysis to the client, be it orally, in a one-page memo, or in PowerPoint;
• quantitative analysis, including financial statements and statistics; and
• globalization: What skills do you need to be effective in a global business, how to work cross-culturally (not substantive legal expertise).

The Dean points out that when he graduated from law school technical excellence (along with many many long hours) was enough to make partner in a big New York firm, but no longer. Today, it's all about understanding the client's business.

Students often tell him that they aspire to being "international lawyers," and they start counting up the number of courses in the curriculum that have the word "international" in the title. He jokes that he'd like to sprinkle all the courses with the word just to make students feel better, but the actual advice he gives is different:

• become a very good Anglo-Saxon common law lawyer;
• go to work for a truly international US or UK firm;
• try to get on matters involving their transnational clients; and
• you will soon enough find yourself to be an "international lawyer."

Did he experience any pushback when trying to get the program started?

"Interestingly, much of it was from the existing students and faculty; very little of it was from the alumni, because they understand this is the way the world works."

And how exactly do the new required courses, the previous work experience, and the acceleration of the degree tie in together? "The idea was to put together one integrated package that--we hope!--will appeal to a slightly different cross-section of applicants, and a slightly different cross-section of employers. And limiting it to the small initial size means we don't have to up-end the law school! After all, it's been around for 150 years.," he says, with a smile in his voice.

The emphasis will clearly be on everything that the traditional law school admissions process overlooks:  The ability to lead teams, emotional maturity, interpersonal and communications skills, a degree of business understanding of the world that goes beyond what LSAT's select for, and (the ultimate goal) the ability to work with clients from the start, in an environment where business operates globally and law penetrates the operations of business in unprecedented ways.

Now let's step back a moment and ask how this might change the law school dynamic.

To begin with, what type of student is likely to self-select into the Northwestern program?  I strongly suspect they will be drawn from the ranks of the "adults"—and not just because of the prior "substantive work" requirement.  As we could infer from the "commentariat" I noted earlier, this program will appeal to people who are serious about getting on with their lives and getting to work.  (I would like to imagine it would have appealed to me.)

Then you take those students who already, by hypothesis, have a higher level of emotional maturity than your average shoot-the-lights-out LSAT overachiever, and immerse them for two years in a program emphasizing teamwork, quasi-real world experience, probably a dose of international exposure, and specific training in quantitative analysis including finance, accounting, and statistics, as well as training in group dynamics (teamwork, leadership, and project management).

If you ask me, putting on my metaphorical hiring partner's hat, the graduate coming out of that program is who I want to interview first, before those coming out of the conventional program.  The "accelerated JD's" will have:

• Real world work experience, and presumably a dose of the realism that comes with it about what it takes to earn a dollar;
• Impeccable academic credentials—this comes with the territory;
• A fighting chance to hit the ground running, with a grasp of business fundamentals both from the theoretical perspective and the hands-on perspective; and
• On average, a couple of more years on them than conventional JD's.

All it will take is a few high-profile AmLaw firms showing a revealed preference for those graduates for the next shoe in the marketplace dynamic to drop:  Given heightened demand, law schools will respond to the demand by increasing the supply of graduates with this type of profile.   Northwestern will surely be included:  Indeed, I have asked myself whether this program isn't the Trojan horse designed to take over the entire school in due course. 

In the meantime, in the market's recursive fashion, isn't it likely that more "adults" might find the accelerated JD attractive, and the post-graduation career prospects more promising?  Extend this thought experiment only a tad further to imagine that they would in fact be all-around better associates:  Higher-performing from the start, more realistic about work and therefore likely to stay longer, better suited and better skilled for what they actually have to do and therefore more likely to succeed (which feeds back into predicting lower attrition), etc., all in a virtuous loop.

And the problem of intellectually overqualified emotional dwarves, much discussed at the Georgetown Law conference on The Future of the Global Law Firm, will begin to be ameliorated.  Not through ABA or AALS regulation or accreditation, not through changing a single component of a single state's bar exam, not even through law school alumni pressuring their preferred Alma Mater to turn out people with at least a fighting chance to succeed, but through the market's invisible hand.  Then, how long indeed, before the classic three-year curriculum is gone?

On his cv, it says that Dean Van Zandt majored at Princeton as an undergrad in sociology, and that his Ph.D. from the London School of Economics was also in sociology.   But I'm betting he spent a fair amount of time slumming over in the economics department. 

Three guesses what these numbers represent:

*not verified

**assumes "?" = 0

Yes, obviously, the number of associate layoffs admitted to by the various firms (hat tip to Above the Law).   Obviously, I have not been able to include firms that have implemented stealth layoffs or, inhumanely, dismissed associates for "performance" reasons when that was actually not the case.  ("Inhumane" because of the enormous blot it leaves on the target's resume: Far better to call a spade a business downturn and leave the hapless associate to the mercies of the market—but at least an accurately informed market.) 

Of perhaps even greater materiality—but equivalent or greater uncertainty—is the number of associates yet to be, uh, excused.  As reported in The Lawyer, "another recruitment consultant, Larry Mulman of Major Lindsey & Africa, puts it [this way]: "To an extent, the downturn in structured finance has provided an excuse for firms to look at other practice areas and to cut dead wood. Within the boundaries of good taste, firms are going to try to get as lean as they can. We're going to see more.""

But this is not a column about layoffs.

It's about requiring arbitration of associate employment disputes.

Assuming arguendo mandatory arbitration clauses are enforceable (I'm not an employment lawyer and never will be), the benefits to the firm and for that matter to the associate seem compelling:

• Confidentiality.  Arbitration proceedings can be conducted essentially under seal, and all the inevitable and predictable nastiness kept off the record, clearly for the benefit of both the firm's and the associate's reputation.
• Finality.  Arbitration proceedings, absent drastic irregularities such as perjury or fraud, are all but impossible to appeal or overturn.
• Speed.  Although arbitration is getting more, not less, complex in terms of discovery and briefing, it remains quicker and more economical than full-dress court proceedings.
• No punitive damages.  Although arbitrators theoretically can award punitive damages (and agreements to waive them in advance may be deemed contrary to public policy), they hardly ever do.  And the professionals who typically make up the composition of arbitration panels are far less likely to have their passions inflamed than your average jury.

Is arbitration a panacea? Obviously not.  But the current environment has to start one thinking about minimizing repercussions to firms as we proceed through and eventually out of this weird and bitter economic stew composed of equal parts liquidity freeze, housing market slide, financial sector contraction, consumer confidence plunge, systemic over-leverage, commodity inflation worries, historically high oil prices,... (Do you want me to go on?  I thought not.)

That said, I'm not aware of any AmLaw firm that requires arbitration in associate employment agreements.  If I'm wrong, please let me know!

This brings us to the crux of the problem:  No one wants to be first.  Understandable, but not insoluble.

Firms have managed to reach magical and mysterious agreement parity on any number of other characteristics of associate employment, without running afoul of 15 USC §§ 1—27, and I'm about to suggest they could conceivably do the same with mandatory arbitration.

All you have to do is read this very column on "Adam Smith, Esq."  There:  How hard was that?

Far be it from me to tell you what to do on this score.  But we already have 174 reasons, and counting, to think about this.

Update 26 June, 8:00 pm:

Helpful readers have pointed me to this story about Kirkland & Ellis' mandatory arbitration policy (apparently effective this past February), which also lends support to the notion that mandatory arbitration is enforceable ("continued employment in most states is adequate compensation [sic: consideration?] for an arbitration procedure")—unless you're in California. 

There, the Ninth Circuit struck down O'Melveny's arbitration agreement with its own employees, finding it "procedurally unconscionable" because presented on a take-it-or-leave-it basis.  Well, at least it wasn't substantively unconscionable.  (The O'Melveny case may be an outlier, as its stricken clause was evidently asymmetrical, allowing the firm to sue employees but not vice versa, as well as forbidding employees from filing discrimination or administrative claims with labor regulators.) 

I've also heard that Wilson Sonsini began signing new associates to mandatory arbitration after the dot-com meltdown, but I have no independent verification of that, and, given the O'Melveny decision, it may be moot whether they do or don't.

Last week Eversheds sponsored a conference in New York, primarily targeted at senior inhouse counsel, to discuss the current and future state of relations between law firms and inhouse departments.  It was not pretty.

About 90% of the attendees were the chief legal officer of their companies or just a rung or two below, representing companies such as GE, Cisco, Tyco, Schering Plough, FMC, and other major companies you've heard of.  Jeffrey Carr, GC of FMC, delivered the keynote:  The first half was a thought experiment imagining the law department of 2020 where all the information he needed about case loads, new developments, assignments, deadlines,  etc., was delivered by an artificial intelligence engine with a voice mildly reminiscent of an English butler.  The second half was Jeff delivering a stemwinder about the out of control  costs of outside counsel, the relentless 6 to 10% annual growth in legal fees, the incongruity of those increases in the cost-constrained corporate world, the insanity of first year associate starting salaries, and the menace of $1,000/hour rates.

The conference  featured instant wireless audience "voting" devices, and a couple of dozen questions were scattered through the morning session, the responses  to which the event's organizer has been kind enough to provide me with. 

This was one of the initial questions asked, I might note, before Jeff's keynote:

What single factor has the biggest impact on your company’s legal function right now?
                - the economic downturn
                - involvement of procurement / purchasing function
                - the pace/scope of global growth in your business
                - recent corporate crisis or regulatory issue we had
                - rising costs of outside counsel

And here are the responses:

After the keynote, Peter Kalis, Chairman of K&L/Gates, the only law firm managing partner in the audience to my knowledge, posed the first question to Mr. Carr [paraphrasing]:  "How do you square  your emphasis on costs with the response to that question, which indicates that 4 out of 5 people here do not consider outside counsel cost their largest challenge?  In particular, about twice as many rank the complexities of global growth their key concern."

Another question dealt with the degree to which law firms understand the clients' key concerns [1= poorly, 5 = very well]:

Not an impressive grading, overall.  Yet the next question indicates the inhouse counsel believe they're  doing a fairly cogent job of explaining the "business  and constraints" of matters to their outside counsel:

It strikes me that these two responses are, shall we say, lacking alignment. 

A subsequent question recurred to globalization [1= not very; 5 = highly]:

Not to dwell on Pete Kalis' point, but with 90% of respondents rating their companies as quite global—and half selecting the strongest option available on that score—I would submit that their need for law firms with comparable global capability has never been greater.

Next came the related issues of project management and knowledge management, which many observers of this scene, myself most violently included, believe could do  more to rationalize how outside and inside lawyers handle litigations and transactions, than any other readily available tools.

Ready for our next disconnect?

So 60 out of 62 agree with me.

Yet they don't believe  their law firms are doing a remotely decent job on this score:

Yet when asked, by implication, whether their departments would be willing to collaborate with outside firms to improve knowledge sharing, about 3 out of 5 don't want to make the investment:

If the question is not mutually supportive investments (we'd prefer not to) but rather cost sharing for budget overruns, we  get a drastically different  story:

Predictably, law firms were also charged with being insufficiently concerned with costs—a charge evidently given heat and force by the pressure inside counsel feel on precisely that score.  Yet firms, in their defense, noted that:

• In this economic environment, they have never been more concerned with costs, especially as top-line growth is challenged; and more importantly:
• The three  primary costs for firms (in order) are:
  • Lawyers;
  • Rent and occupancy; and
  • Insurance.
• Essentially none of these three are negotiable or discretionary in the least. Firms cannot scrimp on talent (nor, I imagine, would their clients want them to), cannot move their offices to Jersey City, and in the insurance market are pure price-takers, not price-makers. All other costs amount, economically, to nickels and dimes.

As noted, one particular element in the bill of particulars indicting law firms' practices was the high level  of associate salaries.  Not only were they obnoxious, unjustified, and objectionable per se, but they forced inhouse departments to pay extravagant amounts to recruit their own staff attorneys. 

By now you perhaps won't be surprised to discover that this particular count of the indictment is not widely supported when push comes  to shove:

Of the following, what is the most challenging issue for your legal department in responding to global demands?

• finding and keeping in-house lawyers with skills for cross-border work
• managing the complexity and diversity of global demands
• dealing with regulatory compliance as we grow globally
• dealing with risks and disputes as we grow globally

In other words, only about 6% of respondents actually name "finding and keeping in-house lawyers with skills" their key concern.

Let me conclude with—I believe—one of the most illuminating results  of all.

We know that towering above all other objections to how law firms do business is resentment of the almighty billable hour.  So yes, yours truly suggested the following question to the organizer:

The billable hour will disappear during my career:

• Yes, because it’s a preposterous measure of “value.”
• Yes, because it sets up an inherent conflict between the law firm’s and the client’s best interests.
• No, because it’s simply too ingrained.
• No, because law firms would be tempted to overcharge.
• We already use “alternative billing” for the majority of our work.

And the results?

My reading? "Alternative billing" has an embarrassingly small "market share," and for all the bemoaning everything that's wrong with the billable hour, the vast majority are resigned to its continued reign. 

I won't go so far as to characterize these findings as a counsel of despair, but I was taken aback—briefly, shocked—by the apparent absence of engaged, constructive, creative, imaginative dialogue between firms  and senior inhouse counsel.  The complaints are  familiar—perhaps too familiar, as if we've become  exhausted by this conversation.  And yet the gulf shows  no signs  of narrowing, or (imagine!) being bridged.

David Wilkins of  Harvard Law School has described the evolution of corporate/law firm relations metaphorically as  moving from that of  a marriage to that of serial dating to that—he hopes—of joint venturing.  Joint venture partners each bring indispensable  capabilities to the mutual enterprise, both understand they can't achieve  their goals without the other, and both  show sincere deference to and interest in their  partner's economic and professional viability.   Is that too much to expect?

On the current evidence, it may well be.

Update (Sunday 22 June, 5:00 pm)

Jeff Carr of FMC writes:

Bruce -- the Eversheds conference was an eye-opener for me not because of the depth of despair, but rather for the simple reason that a major international law firm hosted the event.  At least personally, I've grown tired of speaking about the problem -- because the true problem is on our side of the table -- that is in-side counsel.  Firms are indeed acting quite rationally and we are acting as if this is a highly inelastic market.  Indeed it is not -- we simply choose to believe it is. 

One of the slides I used at the conference compares our "depth of despair" to the coping cycle of a cancer patient -- you know, denial, anger, despair, acceptance, healing.  Most of my brethren are firmly ensconced somewhere between denial or despair -- but we cannot rest there and the happy little band in which I travel (Dupont, Cisco, CP Chem, Tyco and others) seem to be joined by more and more fellow travelers.  I believe we are near a tipping point and it is time to engage our firms in meaningful dialogue about how to get back to value -- the new ACC [Association of Corporate Counsel] project Fred Krebs talked about at the conference hopefully provides a context for those discussions.  We need our law firm partner/providers to be successful and profitable -- they need to change their business model to focus on profits as opposed to top line revenue growth in a cost-plus world.
 
 
All the best,
 
Jeff

Others?  Time for you to weigh in. As painful as this dialogue me be (cancer death?!), it is shockingly overdue.

You know where to reach me.

Update:  25 June 2008.  E. Leigh Dance of ELD International, Inc. writes:

Dear Bruce,

You captured well what we saw and heard at the June 12 conference. As one of the conference “organizers” you mention in your June 21 posting, I have two observations:

In the last six to nine months I’m witnessing a leap in the global trends we’ve been seeing climb year to year. I’m about as internationally oriented as an American can get, and yet week to week I add to my list of fast-growth markets whose cities I can’t spell (without Google, how fast can you find Tallinn, Florianopolis or Chongqing ?) Every multinational corporate counsel I talk to these days is facing a huge increase of business investment and focus in emerging markets (read: higher complexity, risk and exposure), coupled with heavy pressure on legal costs in mature markets.

Generally these counsel just don’t see their law firms as allies to meet the challenge. The conference findings show clients don’t think many outside counsel really understand their issues or can organize themselves to help effectively. That’s not just a damn shame, it’s one very big opportunity. Lots of law firms are growing offices here and there and many are happy to grab high-margin multi-jurisdiction transactions, but precious few firms are offering clients deep, consistent and practical assistance to cope with this global tipping point.

It makes it easy for Eversheds (one of those few) to tell a good story, as it has done over the last year or two and did again in New York earlier this month.

Second observation: more than despair among these CLOs, you were seeing underlying anger. Some of their responses were unreasonable, and that’s a sign of their frustration. With global demands mushrooming, they see marginal help and rising costs from their law firms. Many in-house lawyers want to defend their outside advisers, but often they aren’t given much ammunition to fend off aggressive procurement functions. Meanwhile, the double-digit law firm profits that clients worldwide keep seeing in legal media have an effect similar to soaring gasoline prices. Market forces or not, it seems like others are getting fat off their backs, and it hurts. Law firms have been good at marketing expert advice—but advice is only a fraction of what companies need to successfully address their legal issues globally.

Best regards, Leigh

_____________________________________________

E. Leigh Dance, ELD International, Inc.

[Bruce again:]

Leigh makes some powerful points:  First of all, the disconnect is "not just a damn shame, it’s one very big opportunity."  BigLaw, take note.

Second, "more than despair among these CLOs, you were seeing underlying anger.  Some of their responses were unreasonable, and that’s a sign of their frustration." 

I would add only (as I've written before), that GC anger at starting associate salaries is profoundly irratiional, and I can only chalk it up to a toxic combination of envy and resentment.  Why is it irrational?  Because as a business person (or as an economist), you should care less about what your suppliers pay for each of their factors of production: You should care only about the final product or service delivered.   Perhaps an example disconnected from law-land will help.  We know that many parents (and students, with loans) bemoan the rising cost of Ivy League educations.  Fine, and GCs are entitled to bitch about law firm rates.  But the irrational component is to single out associate salaries for  invective.  People struggling under the weight of Ivy League tuitions don't frankly care whether the burden is attributable to professors' salaries, an "edifice complex" at the college, or the cost of cleaning dorm common areas of beer cans and peanuts Sunday mornings.

And as Leigh recognizes, when a reaction is irrational, it's really about something else.  People who aren't making sense are sending a signal that there's something else going on you're best advised to tune in to.

Over at LegalOnRamp there's an interesting discussion underway about the extent to which GC's do—or don't—seek genuine innovation in the way BigLaw provides services.  I'm taking the liberty of republishing it here (with permission of Paul Lippe, the CEO of LegalOnRamp) because at the moment LegalOnRamp is invitation-only.

It was kicked off by Ron Friedmann:

General counsels complain about large law firms: too costly, bad service, and clueless about the clients’ businesses. After the failure of GC’s many attempts to fix the problem, regulation is surely the solution. 

This simple and easy idea struck me last week when I heard a panel of GCs address the Strategic Technology Forum in Lisbon, hosted by LegalWeek. Their anger at firms was palpable. CIOs have their own frustrations: few partners or clients use the innovative systems they create. The despair all around caused me to think about the market. Consider the many steps GCs have taken that have had no impact on outside counsel:

• Countless law departments have voted with their dollars, switching firms, and privately and publicly explaining their quest for better value. Yet large law firms refuse to budge.
• Rampant standardization has failed. The standard documents of ISDA (International Swaps and Derivatives Association, Inc.) is only one of hundreds of instances of clients coming together to simplify and standardize. Yet bills continue to mount.
• The Tyco arrangement with Eversheds, which introduces various metrics and carefully crafted payments to illicit [sic: elicit] particular law firm behavior (link to Legal Week article), is only one among many such agreements. No market impact.
• Law departments have invested heavily to create best practices, for example, how to manage outside counsel, checklists for transactions, empirical studies on reducing discovery costs, and regularly using risk analysis in litigation. Law firms ignore these well-document guidelines and every effort at enforcement.
• Law department frequent use of non-lawyers and lawyers in India has no affect.
• Large law firms have bid up the price of talent, shutting out the ability of law departments to hire.

Alarmed at large law firm recalcitrance, I consulted my economist friend Madam Smythe, who told me: “On first glance, the legal market looks competitive. The scores of large, global law firms with good reputations should not fool you. Once a company retains a firm, a mini-monopoly ensues; just one bite at the apple - then switching costs skyrocket. It’s diabolical. I’ve run the numbers: law firms are natural monopolies. They have too much market power, which they use artificially to raise rates and corner the market on talent.”

Out of my commiserations with the plight of the poor GC, suddenly, the solution emerged: regulation. Corporations should engage lobbyists to spur federal oversight of the monopolists. The lobbying cost is a small price to eliminate large law firm monopoly rents. Yes, GCs, who have tried every trick in the book, can finally rest - regulation will rescue them.

Now, Dear Reader, if you're inferring that the "modest proposal" title and Ron's reference to his mythical "economist friend Madam Smythe" mean the piece is tongue in cheek, I suggest you ask Ron.  But the substance of the GCs' anger, frustration, and resentment is something worth taking seriously, and the discussion that follows generally did just that.

David Johnson, a professor at New York Law School, chimed in next:

Ron Friedmann suggests in a recent blog post that large law firms should be regulated because they abuse some kind of "natural monopoly" power.

With all due respect to Ron, who often has interesting outside-the-box thoughts regarding the profession, and even though I'm not sure how serious he is, that's crazy talk.

It is not even good economics/antitrust analysis. Sure, switching costs may be high once a company gives a big chunk of business to a firm, but firms are always competing at the margins for new clients, so their practices are constrained by that competition. There is no way the government would be convinced that law firms gain whatever "power" they have other than through skill, foresight and industry. It is even unethical for a firm to leverage any power it has as a result of high switching costs into other markets.

Nonetheless, there may be a seed of an idea insofar as companies could come together to articulate some best practices compliance with which might be made a condition of entering into a new relationship with any firm. And there is no reason why every company has to bear the burden, alone, of "enforcing" such standards and monitoring compliance. So maybe there is a way for the client side of the market to collectively increase the costs to a law firm of "switching away" from adoption of some set of practices that companies generally agree should be followed.

That would be a different, and far more efficient, form of bringing some "regulation" to large law firm practices.

Paul Lippe then provides a schema around which to organize the discussion:

I understood Ron's post to be somewhat facetious in the spirit of Swift's essay http://en.wikipedia.org/wiki/A_Modest_Proposal, but it does raise an important point. I first became a GC in 1988, almost 20 years ago. There is little that was said in Portugal that is different from the critique offered in 1988. So, is it

A. The critique is invalid, the legal market works the way it should, and GCs should stop whining;
B. The critique is valid, things take a while, and now we'll see change;
C. The critique is valid, but the structure of the Legal market impedes change;
D. Regulation is the only answer; or
E Other.

Among others, I invite my friends Gillian Hadfield, Bruce MacEwan and Jordan Furlong to respond, and perhaps Gillian can share a little about her upcoming event(s)appropos of these issues.

Thanks Paul

Jordan Furlong, editor-in-chief of the Canadian Bar's chief publication, votes for Paul's option "C:"

Ron's Swiftian turn -- Bruce would appreciate the reference to "Madam Smythe" -- seems appropriate to the situation. Swift's satire was grounded in his very real outrage and frustration, and while the stakes aren't as high as in 18th-century London, I can appreciate that GCs must sometimes feel like giving up the fight in despair, powerless to make any progress towards more effective business relationships with their law firms.

But while hardly anyone would really endorse government intervention, that unlikely outcome might still prevail if firms don't watch themselves. Law firms are nowhere near as wealthy and influential as their biggest clients, and provoking or prolonging a fight with entities way above your weight class is foolish. Populist lawmakers + corporate campaign contributions + widespread anti-lawyer animus = a lethal combination. Lawyers receive a lot of protection from their status as unique, independent professionals who constitute a significant pillar of a free and democratic society. But if they operate less as professionals and more as complacent businesspeople in a rarefied marketplace, they court serious danger.

I think we're closest to position C on Paul's list, and fundamental structural obstacles invite equally fundamental intervention. But the legal profession still possesses, for now, the ability to reform itself and dictate more attractive terms for a new relationship with clients. I'm not terribly optimistic, though -- there's not much leadership on this point evident in the organized bar right now.

Gillian Hadfield, a professor of law and economics at USC, brings to bear the heavy artillery of competitive market analysis to argue that it's the very complexity of law—a condition created and maintained by lawyers—that is responsible for the "low level of competition:"

Several years ago I wrote an article that argued that the underlying structural feature that generates a low level of competition in law (both over price and product) is complexity. (This is in a Stanford law review article called The Price of Law available at my website https://works.bepress.com/ghadfield) Complexity creates specialization, ambiguity, difficulty judging and comparing legal quality etc. So the question becomes why does law stay so complex, indeed become increasingly complex over time?

Here I think the problem is the regulatory structure of legal markets--which are among the most heavily regulated in the economy. It's just that the regulation is supplied by lawyers themselves through bar associations and the judiciary. The complexity of law is attributable, I think, to the closed nature of the markets here: without the ability to form corporations, seek venture capital, attract innovators who have not been through the training process of lawyers, it is very hard for the market to spur the only real type of change that can reduce complexity and cost and that is innovation in the underlying dimensions of legal inputs.

Why do we need a rule to determine a contract dispute that takes 100 pages of appellate opinion to explain, for example? Why do we need millions of documents to resolve a patent dispute? Why do we need 400 page agreements to effect a transaction (to respond to the complexity of legal rulings real and anticipated?) These are the underlying dimensions of demand. The smart innovator in law, if they could exist, would figure out how to meet legal needs -- for assurance in a contract relationship or protection against risk re-allocation or assessment of liability exposure or ownership of a patent--with a more streamlined product. Until there's a return for innovation and pressure to innovate--because of the risk to established firms that their modus operandi is about to become obsolete--little is likely to change.

Next up is yours truly.  In an attempt to be even-handed, I decided to take a swipe both at the GCs (questioning the sincerity of their desire for innovation) and at the organized bar (which is such a target-rich environment that it was hardly any fun):

Taking Ron's "modest proposal" at face value, my reaction is that it's precisely regulation that's contributing to the problem: Regulation of lawyers by lawyers and for lawyers. What might shake things up is not Congress second-guessing how to protect the Fortune 500 and FTSE 100 corporations from themselves--with Congress' congenital and exquisite obliviousness to the law of unintended consequences--but removing the stranglehold of 51 state bar associations, bar examining authorities, and the ABA itself. Can anyone still say with a straight face that there is any remotely beneficial purpose to such requirements as ABA accreditation for law schools, transparent restraints on trade masquerading as "ethical" proscriptions (no sharing of profits with non-lawyers), and the medieval practice of determining which regulatory authority has jurisdiction over lawyers and firms based on brute force physical presence? Why can't law firms choose, as corporations can, to submit to Delaware or New York or California law and be done with it? What is the economic justification for the need to engage "local counsel?" Why aren't the ABA's Model Rules a per se antitrust violation? I could go on...

But I actually have a more subversive suggestion, which falls under "E. Other" in Paul's schema: I don't believe GC's really want things to change, for all their trashmouth game talk. GC's want their backsides protected by the imprimatur of the Magic Circle, the New York Elite, or the Skadden/Latham brand name. GC's don't want "good enough" quality; they want top-drawer quality.

And I submit this is not irrational. Legal fees as a percent of deal value (unless you're smaller than the attendees at the Portugal event) are typically not material compared to the i-bankers' fees or the opportunity and other costs of corporate personnel assigned to the deal. Do I think Gillian is wrong that 100 pages of appellate opinion interpreting a garden variety contract clause is idiotic? No, of course it is. But the answer is to eliminate regulation of the bar by the bar and watch a thousand flowers bloom.

Paul rejoins the conversation and introduces the new, and entirely pertinent and fitting, concepts of "quality" and "value:"

My learned friend Bruce makes some very compelling points about the consequences of lawyer self-regulation.

His argument about why GCs don't insist on change, while in many respects descriptively accurate, is rooted in a common fallacy: that spending more on legal services is the same as getting better quality.

Dollars spent on legal work is to quality as LSATs are to intelligence - a somewhat self-referential indicator, but largely of a limited type of the feature measured, and problematic in that it crowds out other definitions and metrics. So for sure if the primary good purchased from a law firm if the firm's reputation to shift accountability, then Bruce's argument is correct. But I'd be curious if anyone can come forth with any data to show that in fact (as opposed to in repute) more expensive law firms produce better results, e.g. can it be shown that the investment banks who had the largest losses on their mortgage portfolios were served by lower reputation law firms?

Once this conversation settles down, I will start a separate string (and perhaps a wiki to really pull something together)on what I consider the core issue: how can we develop a definition of VALUE in legal services that is meaningful and useful, and not simply measuring inputs like hours spent, diligence of lawyers, law school attended or reputation of the firm. With such a definition of value, I think we could expect that some lawyers' reputation and income would go up, but some would not.

b/t/w, I think Bruce's point about regulation is 100% correct, but his point about marginal pricing theory is not - no one pays the price for electricity or medical care or food or seatbelts or anything else equal to what the detriment would be if they didn't have it.

Barend Blonde, a legal consultant from Belgium, introduces the European perspective and casts a vote for "B" in Paul's schema::

From my purely European perspective, I find that you a are a bit quick in abandoning option B from Paul's list: Yes, things take a while.

The arguments I read are valid and exciting, but I think we shouldn't be blinded by the seminars we attend and the forums we visit. The GCs that visit the Lisbon Technology Forum are not your average GCs or and the GCs 'cruising the Ramp' are not 'standard'.

I admire GC of companies like Tyco and Cisco for what they are doing and their value can hardly be underestimated. But the truth is they are the scouts of a Mexican army that is still figuring out what to do. The average GC is still a conservative guardian of the hourly rate. The average GC is not thinking about how to use technology to put pressure on law firm services. The average GC is struggling with the implementation of a decent matter management system.

We just finished a poll among European inhouse counsel. We asked them to rank 10 priorities. 'Improving efficiency in outsourcing work to law firms' came out 7th, 'reducing costs' came out 8th. What keeps them awake? The professionalisation of their departments (internal brand, role, skills, IT) and compliance.

The legal market is a free market. Markets change when there is an urge to change. If the legal market doesn't change rapidly, it just means the sense of urgency is not there yet. Tyco, Cisco and you guys are slowly building it up. Keep up the good work!

Finally, I elaborate a bit on the thinking behind my suspicion that "GC's don't really want to change," by analogy to shopping at Tiffany's:

Paul's thoughts about quality and value are, as usual with Paul, intriguing, as well as a bit of a departure from where I was headed, so a small dose of clarification may be in order.

I violently agree that we lack sensible or compelling measures of the "quality" and the "value" of high-end legal services today. If the shocking durability of the billable hour teaches nothing else, it teaches that we are by and large at a loss to determine value (a/k/a price), since we are throwing up our hands at valuing the output and resorting to the blunt instrument of summing the costs of the inputs (with a profit margin built in, to be sure).

My point about the imprimatur of a brand name, or "quality," as Paul nicely puts it, may be a bit more subtle or at least a bit different than the implication that GC's will pay a price equal to the "detriment...if they didn't have it." My point