Big Law. New Law. Ethical Risk

I have been encouraged to think about the issue of the ethics of innovation for a blog George Beaton has run where the comment section has gone into a rare kind of creative construction.  It’s a big topic, and I cannot do it justice tonight.  But I can try and post some pointers and thoughts; in the hope they provoke discussion.

From various quarter were hear, as cri de Coeur, the idea that innovation is either saviour or end of the legal profession.  Both views are based on slightly different meanings of professionalism.  And my intuition, based on reading hundreds of blogs and hearing dozens of speeches on the subject is that the Innovators tend to mean that innovation is the saviour of law as a business and the Traditionalists that business is the problem, and on that basis innovation should be resisted.  In reality though, both positions overlap.

From the ethics and infrastructure perspective there is plenty to worry about in the context of big law.  Hourly fees and fee padding is one.   The economisation of legal work is another.  Lawyers compare themselves, their value, their firm’s value against economic metrics.  It is what gets them promoted; or allows them to swing more swiftly through flexible lockstep.  There is a plausible case for saying this makes them less ethical.  There is an interesting body of research suggests that the more one is encouraged to think of one’s work within a ‘business frame’ the more likely one is to be unethical.  But it is dangerous for law firms to take such research seriously: money is visible, they are chastised by journalists if they seek to make it less visible, and they have to compete in the numbers game to keep recruitment and retention stable.

The third worry is the strength of client alignment this generates.  In-house lawyers are regularly sneered at by private practice cousins for their willingness to do for their employers what ‘independent’ outside practitioners would not.  But if recent scandals have told us one thing it is that private practice firms have been implicated often enough for me to doubt the strength of the distinction made.

Now we could debate whether this rather critical take on the ethicality of Big Law is accurate or exaggerated.   I do not know, but I offer it as a reminder that we should not compare innovation or alternative business structures against overly rose-tinted views of how things are without the upstart start-ups.  For this post’s purpose the interesting question whether innovative business models will make ethical pressures stronger or weaker.  I wouldn’t like to speculate.  On one level, the ‘we’re  better business people’ schtick of the Innovators is a reason for thinking that things might get a bit worse.  My own emphasis would not be on this broad, cultural indicator, indeed there is evidence from Parker et al that lawyers can lead clients astray as often as vice versa.  The important thing will be  the kinds of business model that are run within innovative firms (which may directly incentivise particular kinds of behaviour) and the way in which staff are valued within such firms (of which the incentive structure is but one important part).  Innovative firms have the opportunity reconceptualise ownership, management and status within firms – so an interesting question is will they take that opportunity to design out the economic metricisation of individual performance and promotion.

Moving away from the idea that large proportions of your staff are in competition firstly for partnership and then for profit per partner has a lot to commend it.  Can they do it and recruit the best staff, or good enough staff?  Will they try?  One glimmer of hope is Bill Henderson and Marc Galanter’s research which suggests that what motivates young lawyers to stay with firms is not bonuses and salary levels but things like quality of work.   Another is the research basis that suggests strong incentives diminish the motivation of those doing complex work.  A re-negotiation of the human capital bargain may be possible but who’s going to go first?  Big law has too much to lose too quickly.

Let me push this question a little further.  One of the ways that Innovators claim, with some justification, to be more ethical is through the challenge to the problems of exploitation and short termism associated with hourly billing.  Yet there has to be a worry that through swapping hourly billing for fixed fees one set of ethical problems is swapped for another.  To deal with the economisation of practice argument first: law firms could just switch billable hours targets to fixed fees targets.  The economic signal is still strong; the ethical risk remains heightened.

Proponents of fixed fees however like to emphasise how fixed fees shift some of the risk of legal work back on to providers.  This better aligns lawyer and client interests and encourages more efficient or innovative responses to legal problems.  What they really mean is they shift some of the risk of excessive cost back onto providers.   What they tend not to mention is that fixed fees shift the risk of cutting corners back towards the client.  But, c’est la vie and all that, the kinds of clients that are typically being talked about can assess that risk themselves.  To which I would add: kind of, sort of.  Again, there is utterly unsurprising evidence that fixed fees alter the lawyer’s internal calculus of what work a job needs: do I need interview this witness is probably yes if it’s an hourly fee, probably not if it’s a fixed fee.    This may not be all that sinister, the lawyer does not know whether interviewing the client will really be useful or not.  And if the lawyer does not know, then I’m going to guess the client does not know either.  The risk calculus is different but no one knows whether it is better.

So in the short term innovation towards new pricing mechanisms poses risks to the client interests which may or may not be as serious as the risks posed by hourly fees.  I reckon on the issues being somewhat less serious.  My assumption being that fixed fees will help squeeze out some excess profit-taking on hourly bills which has nothing to do with protecting quality.  Beyond that, mispricing and mismanagement of fixed fees will led to corner cutting on cases, and some more conventionally serious (but hopefully isolated) insolvency related ethical problems where whole business models crash because fixed fees have been mispriced.

The interesting thing for me about fixed fees though is the potential for them to reframe the way lawyers and clients think about law and legal services.   Law firms will have to think about and predict cost much more finely.  They and clients will have to weigh up the cost and benefits of building particular steps into any legal process.  Both parties have strong interests in understanding value and achieving stable and predictable outcomes.  The rather shallow notion of fixed fees being better for the client, and better aligning lawyer and client, will get deeper.  Alignment may become more genuine.  I am usually un-impressed by what I hear on value side of the equation; but occasionally I do sense more impressive and thoughtful approaches that harness systemisation and big data beyond the (not so simple) science of cost management and prediction.  At the moment my sense is that value largely means getting from point A to B (in legal terms basically as we have always done) as quickly, efficiently and with as reassuring as sense of the quality of work as possible.  Better alignment will come when both sides have more than just a sense of value.  At the moment, client and lawyer judgments about what really works are often (not always though) based on experience – a sometimes myopic, bias-ridden teacher but the best one available.  Innovators genuinely looking to disrupt markets have to offer significant reassurance on the quality issue: they have to work harder to show their products really work.  That will drive a stronger, more evidence based interest in value and quality in the long run.  Though again, innovators have every incentive (and are likely to be less opportunistically biased) to believe their own hype.  They will overreach and fail; and sometimes succeed.

A final point is a return to the theme of values which we have touched on when thinking about money.  Our own values influence ethical decision making. In broad terms our values can be reduced to two dimensions.  Along one of these, we differ in how important extrinsic and intrinsic motivations (how interested in fairness and others we are vs how interested in our own status and rewards). Unsurprisingly, the latter is less likely to be ethical than the former.  The Innovators will claim that they are better set up and incentivised to conceive of themselves as genuinely looking at the clients’ needs.  Whether the public interest in the administration of justice gets much of a look in is more difficult to speculate on.  The second dimension is the extent to which we are open to change or resists it in favour of security and tradition.  Broadly, as I understand it, the latter group is less likely to be associated with unethical behaviour.  Innovators are more willing to try something different; and sometimes, like Canadian Mayors and Senior Bankers that means they may be more willing to try things they shouldn’t.

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About Richard Moorhead

Director of the Centre for Ethics and Law and Professor of Law and Professional Ethics at the Faculty of Laws, University College London with an interest in teaching and research on the legal ethics, the professions, legal aid, access to justice and the courts.
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5 Responses to Big Law. New Law. Ethical Risk

  1. Pingback: Morning round-up: Thursday 21 November | Legal Cheek

  2. Jen says:

    I frequently get the impression that when people are talking about fixed fee vs hourly billing, they are assuming that a firm will go completely one way or the other, or that one is inherently better than the other. Surely the benefits are to be reaped when an intelligent, fact-based approach is taken? Simpler, more predictable, jobs are eminently suitable for fixed-fee pricing. Complicated, unpredictable matters are better suited to an hourly rate. And where is it written in tablets of stone that you cannot mix the two – either within the same firm, or even the same matter? And neither is it essential to leap into the deep end and just hope a) you figure out how to swim and b) you don’t crack your skull on the bottom. It’s perfectly OK to start at the shallow end, testing the concept, and only progress into deeper, more risky, waters when you’ve mastered the basics.
    ABS is another one – is it an excellent innovation or the death of Law As We Know It? I would suggest that people confuse the structure with the people in it. Non-lawyers on the management board can bring new perspectives and creativity, and increase the sense of belonging amongst non-lawyer employees. On the other hand, non-lawyers on the board can mean that the firm ends up being pushed away from professionalism and quality by people who simply don’t understand that practising law is not like making widgets. It depends on picking the right people with the right values.
    Structures and pricing methods are not (usually) inherently ethical or unethical. It is the people who operate them who ensure that they remain ethical, or that they do not.
    Unethical behaviour in lawyers happens when lawyers lose sight of their duty to the client, or their duty to the law, or both. Firms go under when lawyers forget their duty to the bottom line.
    And, let’s face it, tradition is no guarantee of ethical behaviour. Lawyers have been associated with spectacularly unethical behaviour for centuries. Shakespeare evidently felt so strongly about it that in Henry VI part 2 he had Dick recommending the mass extermination of lawyers. John Cooke (who prosecuted Charles I) complained about it. In fact, the very reason for introducing fixed-price services is the unethical tradition of overbilling.
    By blaming structures, we ignore the salient point that the major single source of unethical behaviour in the law is lawyers.

  3. botzarelli says:

    Having spent the last 2 1/2 years in one of the innovative firms, after 10 years in traditional private practice, may I suggest where the potential for increased alignment between lawyer and client can come? I’m not sure that the fixed fee element is the key, but rather the massively increased visibility that secondment-based work offers. By being on-site and on call to the whole of the client’s organisation, rather than through the gatekeeper of whoever has responsibility for managing instructions to external counsel, every element of your work is open to immediate scrutiny. While it would technically be possible to have real time, transparent time recording for off-site lawyers, managing it would be a burden for the client.

    When firms like the one I work for talk about being better at business they mean that we are better at the client’s business than traditional law firms (or at least that we take concrete steps to this end) – whether we are better at the business of running a law firm is a matter for the market to decide. From a personal perspective this can be seen in the clear separation between people in the firm whose job is to win work, to find new clients and to find out what clients need doing, and to manage the firm’s relationships with that client, and on the other side, the “fee earners” who deliver the work. There are incentives for fee earners to bring new work and new clients in, but these are optional – getting the best roles is not dependent on it and there’s no “prize” of partnership to skew your efforts towards business development rather than business delivery. The best marketing we can do is by being as excellent as we can be while with the client, and that is much easier to focus on when you have no distraction in trying to meet your firm’s business targets at the same time as your clients’.

    From an ethics perspective I think the difference is that having settled in to being “one of us” with the client, there’s less of a feeling of “we’re paying X hundred an hour, just do it”. Most of the people you work with don’t have any visibility of you being anything other than a colleague and unlike a traditional external adviser, they don’t see you as a direct cost to their project any more than they would the Finance or HR departments. At the same time, because you aren’t going to be there for the long term, you can take a robust view of the internal politics and focus on what is necessary and what you are professionally comfortable with. I have previously felt in permanent in-house roles, particularly in the public sector, that there can be pressure to “go native” and this is absent in shorter-term roles. My personal approach is also to do a lot of things in terms of clearing workload and making decisions which I know would be making a rod for my own back were I to be doing the role permanently (and which from bitter experience I also know to be revenue minimising for a traditional law firm lawyer!).

  4. Pingback: Innovation, the child of intrinsic motivation | BrokenLaw

  5. Richard

    Thank you for your contributions initially to the NewLaw thread to which you refer early in your post. And then for allowing me to reproduce it in toto in the e-book that emerged on December 16, 2014: NewLaw New Rules, available at http://www.amazon.com/dp/B00HCR98I4/ref=rdr_kindle_ext_tmb.

    To me the question of ethical standards is first and foremost one for the individual lawyer or any other professional for that matter, including what I term the neo-professions: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1545509.

    In my observation, ethical issues arise when the environment created by the firm (whether for owners or employees) places antithetical pressure on ethical behaviour. This is also so for in-house professionals such as medicos in pharma and lawyers as general counsel.

    Codes of conduct are very useful touchstones to educate c-suite executives and support upholding the highest ethical standards.

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