Death of Big Law Announced Prematurely…..

Friday, July 3rd, 2015 at 12:20

 

More often than not the sirens of the future predict the demise of Big Law, that the traditional law firm model has run its course, millennials won’t work there, general counsel refuse to pay outrageous hourly rates for fat cat partners. The likes of Jordan Furlong, Richard Susskind, George Beaton, and occasionally myself, will tell us why and how the new age of lawyering will be upon us like the anthropocene age.

Are we professional clones of Klaatu in The Day the Earth Stood Still?

The death of Big Law may be premature.

My thoughts on the premature burial opened up on reading Dealbook’s article in the New York Times about the rise in mergers and acquisition work in the first half of 2015. Almost 20,000 deals worth $2.2 trillion have been announced in the first half of this year. It’s up 40% on the same period in 2014 and is just shy of 2007 levels of $2.3trn.

Deal book comments

Bankers and lawyers say that their “pipelines”—their backlog of pending transactions—are more stuffed than ever, claims that are both braggadocio and an acknowledgment of the sheer numbers of companies weighing mergers and acquisitions.

We know from previous economic cycles hubris usually overtakes any caution that existed in recession. So, despite the pitfalls of Grexit and the pricked Chinese bubble (let alone the future prospect of Brexit), the boom is on.

Law firms ride on these waves and The Lawyer has been reporting a steady flow of profit rises for most law firms in the last year. Certainly some firms are shifting resources to nearshoring and outsourcing and introducing various online portals for clients. Most of this is marginal at best.

Law firms also closely align themselves with investment banks who are doing these M&A deals. These alliances go back many years. What then are the figures?

The top four banks doing the biggest M&A deals are Goldman Sachs (31% market share), Morgan Stanley (26%), JPMorgan ((22%), and Bank of America Merrill Lynch (20%). They have the largest and most transactions of the major banks.

The key law firms doing M&A show how alliances often endure in such relationships.

 

There are few surprises with Skadden, Cravath, Davis Polk, Sullivan, and Wachtell. These firms are renowned for their M&A work. We are, however, seeing the incursion of the outsiders in the guise of Latham (Los Angeles) and Freshfields (London). Both are boosting their New York capacity.

For me the law firm of interest is King Wood & Mallesons rising from number 49 last year to number 15 in 2015. This may be on the back of outward Chinese M&A, but it shows the rise of Chinese law firms in a world dominated by New York and London.

The revenues from this work are significant and will be reflected in profits per partner. What is also significant is the the role of “the dog in the night”. There appears to be no barking from general counsel in these deals, no demands for cut price work and the like. Given deals like Royal Dutch Shell’s $70 billion takeover of the BG Group, this type of work is of the “bet the house” class. It is perceived as too risky and too valuable to be assigned to a second tier law firm.

As is common with booms and slumps, the upward slope of the cycle induces a form of amnesia that negates the incentives for change and there is a regression to the mean. In this case the mean is business as usual.

Now one could ask about changes in hiring practices and the habits of millennials who won’t partake of the partner tournament. If millennials do view careers as portfolios of different jobs then the tournament has lost a critical player. I would argue differently in that the tournament is busted and that it was never a sustainable programme. It contained the seeds of its own self-destruction.

Indeed the death of tournament has played into law firm partners’ hands. It is evident, as Bill Henderson and others have shown, that equity partnerships have shrunk over this century and become more elitist and less of a reward. That millennials and Gen Y refuse to play the game only assists law firms in rescaling themselves for the modern era. They have freed themselves from long term commitments equivalent to the Greek pension system.

Am I reading too much into a set of short term figures? I wish I were. But the forces of change in law and legal services are remarkable for their resistance to change and pressures to modernity. We only have to look at the resistance of the Irish legal profession to market liberalisation and new regulation. In four years the Irish bill implementing these changes is yet to emerge from the parliament. And what eventually comes out will be considerably watered down. I would even cast a sceptical eye over British changes and the ability of the legal profession to countermand their spirit.

Perhaps we shouldn’t yet gather for a premature burial

 

The Irish Bar, Magna Carta and the Future of Law

Monday, June 22nd, 2015 at 14:48

(thanks to Irish show bands)

I was asked to speak to the Irish Criminal Bar Association last week in conjunction with the 800th anniversary of Magna Carta. Why not, I thought, I’ve given around twenty talks this academic year. One more is fine. It meant I would see the new criminal courts in Dublin, designed by Henry J. Lyons.

We were two speakers, a Senior Counsel on what Magna Carta meant, and me on the future of law for lawyers in the cyber age. Those of you who’ve read Maeve Hosier’s book, The Regulation of the Legal Profession in Ireland, will know the Irish Bar is best characterised as conservative. The King’s Inns’ (where barristers are trained) motto is Nolumus Mutari–we do not wish to be changed.

I started with the observation that Magna Carta, for all its virtues, was a treaty between the king and barons, not the common man. Instead a better commemoration would be the Charter of the Forest of 1217 under Henry III which opened up the Royal Forests to the common man for cultivation and foraging and grazing. The Charter also established Special Verderers Courts to enforce the forest laws.

From there to the 21st century where mainly focused on the delivery of online “law” in its different forms. Their benefits I argued are the democratisation of law, the reduction of information asymmetries in professional-client relationships, and the empowering of individuals. Which means a different role for lawyers. I don’t think my audience was overwhelmed by my vision.

The examples I used were Modria.com, eBay’s former online dispute resolution system, which is now working on online divorce resolution and neighbourhood dispute resolution in the Netherlands, and property tax assessment appeals in Canada. I ventured that small criminal case courts could use this technology to sentence accused by algorithm without their having to appear in court–a seeming inefficient use of lawyers’ time where most cases plead out.

I shifted to IBM’s excursions into data analytics and their use in professional services, notably medicine. The instance which really intrigues me, however, is IBM Cognitive Cooking, where you pick an ingredient and a region and out pops a recipe.

(thanks to IBM)

Why shouldn’t law be as inventive as IBM’s Cognitive Cooking? Corcoran gives examples of in house counsel using big data and predictive analytics to deal with problems like product recalls and tricky mergers and acquisitions. Ireland is already thinking about these issues with the Programmable City project at Maynooth University. Of course there is a need for skilled legal judgment outwith the algorithm. My audience wasn’t enamoured of this prospect.

I gave them a run through of some of the innovations in legal provision including LegalZoom, Radiant Law, and roadtrafficrepresentation.com (I think this last caused the most consternation). The new “agile” legal providers such as Lawyers on Demand and Axiom were clear interlopers.

As a result of being bailed out by the EU, ECB and the IMF, Ireland agreed to a reform of legal services which resulted in the Legal Services Regulation Bill 2011. The legal profession, true to that motto, has resisted and rebuffed, and the bill has yet to be passed. The originating Minister of Justice has fallen by the wayside, as politicians do. The new one seems to have been well house trained by the legal profession and the bill is weaker than at the start.

Perhaps cyber law will not be so welcome yet in Ireland but the country still has a big problem with inadequate access to justice and diminishing legal aid isn’t about to become fruitful. The legal profession exercises a tight monopoly which needs breaking.

Time for a new charter…….?

Trade in Services Agreement (TiSA) and Legal Services

Sunday, June 7th, 2015 at 14:31

(thanks to Wikileaks)

Wikileaks has just released 17 documents TiSA related documents. For those of you who haven’t heard of TiSA before it’s the Trade in Services Agreement. It is the largest part, but least known, of the three main trade agreements being negotiated now. They are TPP (Trans-Pacific Partnership), TTIP  (Trans-Atlantic Trade and Investment Partnerships) and TiSA.

Fifty-one nations participated in TiSA yet the BRICS were excluded. Moreover, the detailed contents were to remain secret for five years after signing. TiSA is much more far reaching than GATS and its negotiations have been ongoing since 2013.

According to the New Republic

The deal would liberalize global trade of services, an expansive definition that encompasses air and maritime transport, package delivery, e-commerce, telecommunications, accountancy, engineering, consulting, health care, private education, financial services and more, covering close to 80 percent of the U.S. economy. Though member parties insist that the agreement would simply stop discrimination against foreign service providers, the text shows that TiSA would restrict how governments can manage their public laws through an effective regulatory cap.

Among the documents released is the TiSA Annex on Professional Services which includes legal services. So what does TiSA say about professional and legal services?

If a member state has restrictions on trade in services it should enable cross-border supply of professional services without limit. So how will India be affected by this? It’s a BRIC so it has had no role in this negotiation and it tightly forbids cross-border legal services. And parties must not try to impose national restrictions on cross-border suppliers of professional services.

If you want to practise in a member state, you don’t have to set up an office there or be resident.

If a foreign provider is providing services through a “commercial presence”, no limits on the amounts of foreign capital can be imposed in investment or share capital. Nor can the nationality of the partners or senior management be restricted.

A member state can’t require that professional services be provided through a joint venture. Wholly owned foreign suppliers should be allowed. In addition member states can’t impose discriminatory hiring practices, namely, nationals only.

As a professional services firm, you can keep your firm’s name. Baker & McKenzie won’t have to forage for partners with these names to open their offices. Interestingly, Japan is one of the proposers of this change and yet used to be one of the perpetrators.

If you as a lawyer want to provide foreign or international law advice, you will be permitted to fly in and fly out to do so for up to 90 days, and nor do you need an office in the other’s state to do this. Again this will impact on India.

Member states should work to recognise each others’ qualifications, licensing and registration regimes. At least there should be a regime for temporary recognition of other member states’ licensing and registration procedures. Moreover, temporary recognition should not operate as a block on subsequent full recognition.

To make sure this happens member states must set up a Working Party on Professional Services with a mandate to working with the regulators to pursue mutual recognition.

If you take this set of proposals in conjunction with those on financial services–very liberal and will forbid restrictive local regulation–London and New York law firms especially are going to do extremely well. Local law firms will have to play catch up.

For legal services I don’t see anything that perturbs me, at least too much. But I can see why the BRICS were excluded as this effectively stampedes their sacred cows. What will make it hard for countries such as India is that most of the foreign lawyer/law firm disputes that its courts have heard will become instead part of the investor-state dispute settlement system, i.e. arbitration. This could be explosive, I imagine.


Are We Seeing the Real Multidisciplinary Practices Emerge?

Wednesday, May 13th, 2015 at 11:05

(thanks to nierodzim)

EY Law has hired partners from Baker & McKenzie and Weil Gotshal & Manges to join its financial services practice. They combine with lawyers from Freshfields, BLP and Addleshaw’s.

It makes sense, and since the SRA is easing its rules on forming ABS and therefore becoming an MDP, that the big accounting firms are resurrecting earlier ideas about becoming multidisciplinary practices. Despite Enron and the debacle of Arthur Andersen’s implosion in the early 2000s, the Big 4 accounting firms realise legal services are too important to be left to the lawyers alone.

EY Law’s website shows their imperial ambitions with the sole exclusion of North America (but for how long?). They have a neat and colourful graphic (which needs recolouring drastically–awful) detailing how legal services form a core element in their work.

The other Big 4 are plucking lawyers from law firms to build capacity in their own legal services units. Deloitte Legal has over 1300 lawyers but is not becoming an ABS, which is odd. PwC Legal,  KPMG and EY Law have received ABS licences from the SRA. Even in Ireland KPMG has taken on six lawyers from the Dublin law firms.

I presume that gaining the ABS status is a precursor to moving out into the market as an independent entity in the way that BT has done with BT Law. And why not? One of the main complaints of clients of law firms is that their lawyers don’t understand their business. One could argue that accountants ought to have great insight into the running of businesses and so offer significant value to legal clients. Despite noises from accounting firms that they don’t intend to challenge law firms on their core services, which I don’t believe, it’s inevitable they will compete. One of their strengths is in their global networks which lawyers can only dream about.

Years ago when the senior partners of Clifford Turner and Coward Chance, two somewhat insignificant London banking law firms, held secret merger talks on park benches they imagined they could form a law firm so big that they could merge with an accounting firm. Of course they didn’t but now that would be impossible. No law firm could merge; it could only be taken over.

 

Law Set Free…?

Tuesday, May 12th, 2015 at 09:00

 

Liverpool Street Station Installation


Several years ago when I began tracking the changes in the legal services market, new types of law firm (or practice) were forming. Some were virtual, others were dispersed without formalised, central offices and some were not even law firms in the traditional sense but companies that offered legal services.

One of these I looked at was Keystone Law. It’s idea was to get rid of expensive offices and use technology to coordinate its dispersed expertise. Lawyers would control their own workflow rather than being set targets, illusory or otherwise. The entity would deal with the administration and compliance.

To promote this way of working Keystone is running an installation in Liverpool Street Station called “Law Set Free“. The central idea is that legal careers ought to be more responsive to personal needs than those of an organisation. It’s a simple concept that speaks to enterprise and self-actualisation in these days of precarious careers.

Keystone foreground their move with a “Lifestyle Calculator“, which asks you to input billable hours, salary, and more, then presents you with a pie chart of what your professional life looks like in order to compare it with their alternative. Apparently over 2000 lawyers have used it.

There is far more discussion and academic analysis now of the stresses of professional careers and especially lawyers. Depression isn’t rare: what is difficult is how hard it is to talk about it without being seen as weak or inefficient. See, for example, Patrick Schiltz, “On Being a Happy, Healthy, and Ethical Member of an Unhappy, Unhealthy, and Unethical Profession” for a discussion of the importance of this topic. The legal profession is trying to face up to this but it’s only made baby steps. Law schools have yet to tackle this. They tend to present legal careers in rosy terms as do most law firms. Just look at the publicity material they publish on how attractive legal careers are. For more on this see Richard Collier’s fascinating work on well-being in law as well as this article on representations of trainees.

Traditional models of legal careers still hold sway and will continue to do so for some time. But during the Great Recession the legal profession ruined the trust it built with those who worked in law. Indiscriminate layoffs and increased financialization have have pushed the business philosophy way ahead of the professional ethos. They are not necessarily incompatible, but they do need to co-exist.