Innovation: beyond the burning bridge

I attended one of Riverview’s ReinventLaw events this week built around Mitch Kowalski’s book.  This was largely a group of people of innovation friendly lawyers.  On one level it felt a bit like Hamlet missing, not the Prince, but the Uncle.  The cranky Uncles who believe that things should, can or will stay as they are were thin on the ground.  Even the journalists had a slightly less world weary air about them (that could have been the sugar-carb fest which accompanied coffee).

That one-sidedness to the debate might have felt like a disadvantage but it wasn’t. We got a more nuanced discussion.  It was free of the need to deal with more basic issues presented by the it ain’t broke so don’t fix it brigade.  And it allowed some of the more important problems with new thinking to surface.

Nevertheless, I left with a somewhat abiding sense that something was missing. Most of the discussion focused on the doing more for less debate; the (inevitable?) decline of equity partnerships as the signature business model of the legal profession; and, the inexorable rise of fixed fees as the standard model of charging for all but the most bespoke of legal services.  I am broadly persuaded that these things are going to happen, but for me they do pose a number of issues which are not really addressed yet.  What might they be?

One is that fixed fees are not a magic bullet. They do not necessarily align client and lawyer incentives and they do have specific problems (most notably a risk that corners will be cut).  What fixed fees do is allow greater competition, and they release firms and their employees from some ethical and management problems (of the ‘all we need to do to stay afloat is more hours’ nature).  That is almost certainly a good thing, but for the system to evolve successfully requires firms and others to get a clearer grasp on quality. Not that quality problems didn’t exist before fixed fees, just that some problems are exacerbated.  Where the choice is between keeping a fixed fee case to an average cost profile and taking a step which (say) there has a 50:50 chance of helping the client’s case, lawyers will see those choices as less favourable to the client and themselves (50:50 will look and feel like 20:80).  Economic incentives build in biases, and those subject to them may not always be aware of them.  I’d like to see evidence of how that is going to be tackled.

A second problem is a comment on the main state the debate is at. This is what change managers would, I think, refer to the burning bridge phase.  The Innovators have an interest in talking the fire up and saying the system is broken because it attracts clients attention (especially General Counsel).  Most in the profession don’t believe them, or won’t admit it, so the debate tends to focus on whether the bridge is burning.  But in many ways saying fixed fees are coming; that the partnership model is a busted flush (see Stephen Mayson’s excellent blog here); or, that PEP is an insidious way to value legal businesses are not really the issues of most interest. Sure, firms need to be thinking about these, and it is possible that the crank Uncles are right and these arguments are given more potency than they deserve by recessional impacts on legal services, but ultimately these are just the issues that the legal services market has to jump over as it makes its way off the burning bridge. It’s what comes next that is really interesting.

So far, the lessons that are emerging around the ‘what next’ question are rather process driven and clouded by, I think, the cultural baggage of current models. So doing more for less, means doing more or less the same thing but with a better understanding of client’s needs and priorities, being more ‘commercial’, ‘adding value’ and the like.  Whilst I do not like the opacity of the language, and can see some situations where being too commercial or value driven could be dangerous, I do not have a fundamental problem with the underlying ideas.  The issue though is once competition does its work, and process has been driven towards a more optimal approach, where does it lead us?

That’s not an easy question to answer. I do think there is one clue in Riverview’s definition of its own innovation. That is, they emphasise “measurement” as an aid to client relations and service.  There’s an interesting piece of research that comes to mind every time I hear this which is essentially along these lines: Firm X used to draft bond documents. It used to litigate bond documents. And it never used the information from the litigation to update and improve the quality of its bond documents.  That’s a missed opportunity, unless one sees that the incentives of current practice models make the approach profitable from the point of view of the firm, but not of course from the client.  Measurement of the ‘effectiveness’ of contracts might drive their actual improvement in terms of their influence on behaviour for the client. At the moment that influence is rather assumed.  Lawyers think, we have a rule for that, rather than, we have a rule for that that works. Understanding whether rules influence behaviour as hoped takes a lot of skills and information which most firms do not yet have. It also requires, or at least benefits from, scale.

This leads onto my third point. What is the intellectual capital of a firm?  At the moment that capital resides principally in the staff, and equity partners in particular.  Know-how is charismatic and experiential: clients are persuaded that Partner Y is the best by dint of their charisma, experience and perceived competence.  Perceived competence is related to actual competence, but it is not, I would venture, anything close to a perfect match.  Firm cultures, systems and staffing generally can provide institutional capital (and improve service), but the basic model is social.

Innovation may lead us somewhere else.  It may lead us towards a more scientific model of expertise, where big data mining and management facilities greatly enhance the institutional skills and memory of the firms. This is clearly happening in some firms, driven by scale, and large institutional clients who take more persuading about both core and marginal quality claims.  This is probably the real battleground for legal service providers in years to come, at least in any business where they are trying to predict or influence the behaviour of opponents or employees or customers or suppliers.

Even this though is essentially process engineering. True it is process engineering which depends less on the received wisdom of rules and seeks to understand the actual wisdom of rules.  It is, I like to think, a more socially, economically and psychologically rich understanding of law which helps improve such processes.  Yet, the really interesting question is, at what point and how does such process engineering lead to radical redesigns of the institutional frameworks?  Contracts might cease to look like contracts. Volume dispute resolution will almost certainly cease to look like litigation, or its shadows, negotiation and mediation.  Precedent production my cease to be a feature of individual appeals.  Law, then, may not look quite like law looks now.  This is not about automation or artificial intelligence necessarily, although both may play a role, but about lawyers re-engineering the process.  We can see signs of it already; some exciting, some concerning.  Claimant capture; what I call private Ombudsman and other developments.  All this require different kinds of expertise, experimentation and investment. It requires some tolerance of failure, but also scepticism about the claimed benefits of innovation too.  Not everything is good simply because it is new and the market appears to like it.  Nor is anything that challenges received wisdom bad.  We need to be both wide-eyed and sceptical at the same time; most of all we need to be better informed about innovation. We cannot do it.  But also we can.  Not yet, though; first we must attend to the burning bridge.

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