Strategic Legal Technology

Blogger and editor Jordan Furlong has started a great forum on legal innovation at Linkedin. Jordan’s post has more information. 

The Linkedin Legal Innovation forum has several discussions in progress, including two I initiated on my favorite topics: outsourcing and working virtually. I encourage anyone interested in legal innovation to join (membership is moderated).

Of course, this forum raises the question of how many social media we can participate in and which ones will win. I blog (here and at Integreon), Twitter (at http://twitter.com/ronfriedmann, have a Facebook profile, and participate in Legal Onramp. This is the first substantive use I’ve made of Linkedin because the discussions have been lively and good.

Perhaps we all need doppelgangers to maintain our virtual selves as we live our “real” lives?

The e-discovery market is consolidating and its growth slowing according to a recent Gartner report. 

Gartner, in a December 2008 report, Gartner MarketScope for E-Discovery Software Product Vendors, reports several findings:

• Spending on e-discovery software technology and services will grow between 25% and 35% annually, down from 50% growth. Corporate insourcing is one reason for the declining growth.
• By year-end 2009, there will be 25% fewer EDD vendors.
• It remains difficult to compare products.
• “[W]e have also seen companies and law firms changing their tactics and the overall volume of litigation decreasing due to the excessively high cost of e-discovery.”
• Assessments of EDD software vendors include Anacomp, Autonomy, CA, Clearwell, FTI, Guidance Software, IBM, Interwoven, Kazeon, PSS, and Recommind.

The Gartner report is available for registration at the Clearwell site or for purchase at Gartner.

What I find interesting is that the litigation support and EDD market has long been fragmented. When I arrived at a law firm in 1989 I analyzed the lit supp vendors, which was exactly the type of work I had just done at strategy consulting firm Bain & C0. I was amazed at how fragmented the market was.

The explanation I came up with then is the same that I think applies today: purchasers are very fragmented. That is, few law firms - or law departments for that matter - buy EDD services on an institutional basis. Individual lawyers at firms and departments typically select vendors. There is a slow movement by corporations to institutionalize buying. Consolidating the number of buyers likely would do more than any other single factor to drive further vendor consolidation. Doing so would likely also continue to drive prices lower.

My friend and former colleague Shy Alter of ii3 wrote an interesting blog post suggesting that, with some adjustments, the billable hour may have a long life ahead. 

In Billable hour - exagerated rumors about its death, Shy looks at his own knowledge management and consulting firm to assess different billing models, ones that limit risk and provide more predictability. And he reports on one of his law firm clients that has come up with a sophisticated cost estimating model.

Reading his post makes me wonder what the real problem is when clients say they want alternate fees. I suspect the talk about alternative fee arrangements is driven by a series of inter-related concerns:

• Legal services are just too expensive, irrespective of how charged for and costs have to drop
• Predictability is important and current BigLaw approach is too unpredictable
• Law firms have no incentive to work efficiently and work is currently highly inefficient
• Firms don’t ask about risk tolerance so invest too much in rendering services ("leave no stone unturned")
• Cost really does not matter but appearances do. GCs must create the the appearance of taking action on fees. (Remember “voo-doo economics"?)
• Hourly rates are just too high (the moral outrage factor)
• In an age shrinking compensation, clients no longer want to support partner profits approaching $2 million

The legal market is not well and I am not necessarily saying preserve the billable hour, rather, let’s as a profession discuss what the real problems are.

If you listen to law school deans, you would think training as a lawyer is the greatest thing since sliced bread. 

At least that’s my take away from the Nathan Koppel Wall Street Journal article Best Defense? Seeking a Haven in Law School (19 Mar 09). Koppel quotes law school deans who extol the virtues of legal education and writes:

“School administrators seize on the versatility of a law degree in asserting that [a JD] is still a sound investment. Lawyers, they say, will play a central role in navigating a variety of issues, such as the use of natural resources, cross-border trade and government stimulus spending, which likely will play a central role in the economy for years to come.”

That may be true for some but see Is the Versatility of a Law Degree Just a Myth? (NLJ, Dec 2008) and The Value of a JD and Musings on the Structure of the Legal Market, an e-mail exchange between Doug Cornelius and me.

As I often say in these posts, prove it with data. The NLJ article says “But even in good economic times, the advantage of a juris doctor degree in landing a job in another field may well be overblown.” And as the WSJ article points out, getting a high paying job if you graduate from a lesser law school is no sure thing. Do law school deans have the data to show otherwise, especially in what may be a new, bad economy?

In the current economic crisis, law firm management must re-think how lawyers practice and how to run the firm. 

The legal market changes slowly. Many say the slow pace stems from lawyers’ training to focus on precedent. That’s true but I think the bigger reason is that the market has rarely punished late adopters. Law firms could afford not to change because they consistently earned high profits.

Late adopters in other industries, in contrast, are regularly punished. For example, Sony’s focus on cathode ray tube televisions while competitors developed flat screen technology cost it dearly. Or look at the US auto industry. Law firms, however, rarely suffer by being late to the game. The ones that waited to adopt e-mail, waited to create marketing departments, skipped knowledge management, or waited to take business intelligence / analysis seriously have not visibly suffered.

That may change in the current economic crisis. Three AmLaw 100 firms have dissolved and many have laid off lawyers and staff. Articles today report on pressure to drop rates and BigLaw partners decamping to smaller firms where they can charge less.

Is the market just in a downturn or has it fundamentally changed? Blogger and editor Jordan Furlong argues in This is not a drill that

“Many underlying beliefs about how economic value is generated are simply falling away, and we don’t yet know what will replace them — all we know is that it’ll be different from what we had before. That’s why many of the legal job losses we’re seeing, in firms of all sizes, aren’t temporary layoffs that will return when the recession ends. They’re eliminations — positions that won’t come back, because the underlying mechanics of value in legal services are changing and the new environment that emerges from this crisis won’t require them.”

His blog post cites many recent articles and blog posts supporting this proposition (including Recession Sends Lawyers Home from the Washington Post, in which I am quoted).

The question for large law firms is how to react to this downturn beyond immediate lay-offs and cost cutting. Should they deploy more technology? Work virtually? Move to fixed fee billing? Put project managers in charge of big matters? Centralize management? Get serious about practice group profitability and management? Outsource more?

I would argue for all these changes and more. Yet some of my BigLaw friends think that all will return to normal in a couple of years. What if they are not right? What if the market really has changed? What if firms late to adopt new ways of working and doing business are punished?

Smart managing partners should explore options to reduce the risk of being left behind (and perhaps going out of business). Also, exploring options with clients builds their trust and can gain share. Just offering clients a new approach - even if declined - tells clients that the firm is looking out for their interests.

[I originally posted this at Integreon’s blog.]

I used to write “Roundup” blog posts that were short items I’d accumulate that did not warrant a full blog post. I’ve found that Twitter now fulfills that function. I will periodically post in the Roundup category recent Tweets of interest. 

For me, this reflects one reason I started blogging in 2003: personal knowledge management. Twitter and blogs are not just about sharing. I often use my own blog to find information I need. By copying a sub-set of my Tweets, I can both share highlights and locate them more readily along with my blog posts.

NYTimes gives new Google Voice, formerly Grand Central, excellent review. Unified communication - 1 phone number, 1 inbox, transcription. Mar 12th

Waiting on Microsoft update install. MS should say how much time before grabbing PC control. Someday we will be free of MS yoke. Mar 11th

Wash. Biz J: law department belt tightening http://bit.ly/TMMHd. To save $, legal offshoring and LPOs are an alternate to law firms. Mar 9th

Orrick lays off 200 staff; # from Wheeling Global Ops Cntr unclear http://bit.ly/10uJmL. Will GOC staff be bigger or smaller % of total now. Mar 3rd

HSBC offshore legal team in Malaysia gets go-ahead - LegalWeek http://bit.ly/IZjcd. Will more law departments set up offshore? Mar 1st

What happens when cloud computing services terminate? Yahoo “Briefcase” service stops 30 March. Not widely used but consider ramifications. Feb 25th

Pillsbury lay-offs discussed loudly on a train, picked up by blog. http://bit.ly/U6iFA. Should clients worry about their privilege now? Feb 23rd

Blogger at widely followed Slaw writes LPO Provides a Positive Boost for an Economy in Recession http://bit.ly/yz7ox. Feb 21st

Optim Legal http://www.optimlegal.com.au/ in Sydney offers interesting new law firm model. Good article at http://bit.ly/I82L. Feb 8th

Lyceum Capital asks UK BigLaw what it would do with equity infusion. Would love to know the answers. LegalWeek http://bit.ly/HQVG. Jan 29th

My post last month Measuring the Consistency of Legal Documents reported on pioneering legal document analysis by Kingsley Martin led to an interesting follow-up dialogue about standardizing transactional documents. 

Doug Cornelius (Compliance Building blog and DougCornelius.com) posted a public comment on that post. It led to a private e-mail exchange among Doug and Kingsley (www.kiiac.com or e-mail to kingsley dot martin at kiiac dot com). With their permission, I reproduce the e-mail exchange below.

The discussion raises issues similar to ones in my December 2007 post, Dressing the Emperor: Jones Day M&A Lawyers Speak Out, reporting on comments in an article by Jones Day lawyers Robert A. Profusek and Lyle G. Ganske. They observed that lawyers seldom add value to deal-making, that document creation is now a commodity, and reported on “spearheading an initiative to rethink deal documentation.” I don’t know if that initiative has moved forward but I think Kingsley’s approach would facilitate the creation of document standards and give attorneys the tools to rethink their role beyond document drafters and move towards business counselors.

It also relates to the theme of contract simplification that Kenneth A. Adams raises in his article Retooling Your Contract Process for the Downturn (PDF, also in New York Law Journal, 19 Feb 2009). Adams is a legal drafting expert and has long written about contracts and discusses in the article how simplifying contracts can save money. A combination of simplification and consistency would go a long way to improving the process of law practice, lowering costs, and reducing risk.

Here is Doug’s and Kingsley’s e-mail exchange:

Doug’s Comment on Blog Post Measuring the Consistency of Legal Documents

You need to throw out the Interest Rate Swap Agreement. That is a standardized document. Although the financial implications may be complex, the transaction is fairly straightforward. Standardization removes the transaction costs and allows the market to exist. The derivatives market would not exist without this standardization.

You see a similar standardization in residential mortgages. This allowed the RMBS market to exist. Besides the financial failure, a big failure of the CMBS market was not standardizing the document package.

On another note, one of the difficulties of a work product retrieval system for transaction documents is that the words and provisions are very similar. Much of the value of a particular document is the information that is not in the text of the document itself: industry of the transaction, the bargaining strength of the parties, etc.

As a former real estate practitioner, I can tell you that leases and P&S agreements for real estate are very similar. Since you took your collection from EDGAR you are only seeing the biggest and the most highly negotiated of these types of agreements. That may skew the results.

As for merger agreements, I think the existence of EDGAR has changed that practice. You have a big collection of these documents, so everyone can look at these for guidance. The other side is that your collection of merger agreements is for public companies. You may get a bigger spread if there were more private-private merger agreements.

I think the results show the benefit of document automation systems. The majority of provisions in a document do not change from transaction to transaction. A lawyer’s time is better spent on the pieces that distinguish that transaction from others.

Standardization will be good for the legal profession. It reduces transaction costs, which is good for the client. It allows the lawyer to focus on the key issues and language in agreements which should make the lawyer’s practice more interesting.

Doug Follow-Up E-Mail Comment

One of the interesting features for markup is the approach taken by Fannie Mae in their DUS [Desktop Underwriting System] program for multi-family mortgage loans. All changes to the document are in an addendum rather than incorporated into the document. Anyone can quickly see how that document differs from the standard form.

Of course, for a document with lots of changes, it gets very difficult to read. The Fannie Mae documents are very fair to the borrower so there is generally very little negotiation. (As a result, legal fees are low.)

The Rouse Company used to take the addendum approach for their smaller retail leases as well. That worked, not because their lease form was fair, but that they rarely agreed to changes. There was a big imbalance in bargaining power.

Kingsley Replies to Doug’s Comment

Thanks for the feedback.

I included the ISDA document as a yardstick or control, but I do agree that using a standard form is hardly a satisfactory measure of consistency.

I also agree with Doug that one likely direction for transactional documents is a Master Document, configurable through Definitions and/or a term sheet.

Indeed, this is the way the ISDA document works.

We are beginning to see industry groups, such as the IACCM in the US and the ICC in Europe, develop standard documents that can be rapidly drafted and customized with an addendum. Mortgage lenders, for example, have for a long time used riders.

The challenge is still to identify the standard terms and to secure agreement of interested parties. Individual corporations and law firms are starting to create their own standards. Where the effort involves an industry group, the process can take many years, as with ISDA. And in this case, parties to the OTC Derivative contracts are often the same organizations, sometimes on different sides of the deal. In other words, they have a shared interest in conformity and fairness.

Where there are divergent interests, it is likely that the process of standardization will take longer, unless as Doug points out one side can dictate terms. However, one of the goals I seek to achieve is to narrow the points of divergence. Whether it is a loan agreement or an asset purchase agreement there are a few key provisions; the remainder are already fairly consistent, or in some cases inconsistent for really no good commercial reason.

Doug Replies to Kingsley

I found it interesting that the ISDA was not higher. I would have expected 99-100% consistency. Again it could be that that the documents you pulled from EDGAR are highly negotiated for that type of document.

There was some effort to standardize early investment documents from a Silicon Valley legal association. They never got very far.

The one standardization I saw over the last few years was the inter-creditor agreement between a mortgage lender and mezzanine lender in real estate documents. The form was drafted by Dechert as counsel for S&P. Lenders started requiring that form or a comparison to that form in securitized mortgage loan originations. That financing market has now disappeared so I am not sure if the form will stick.

Too many lawyers think of themselves at artisans for these agreements and that they must use their template. Having a common starting point would make the legal work easier on the lawyers and the client. Your study goes a long way toward showing the need to have at least common outline.

Kingsley Replies to Doug

I too thought the ISDA documents would be 100% conforming. I think there are two reasons for this slight discrepancy. First, the ISDA document has gone through two main iterations (1992 and 2002) and the differences between the drafts may be causing the some divergence. Also, I have come across many cases where lawyers have amended some of the language, despite the fact that it is indeed intended to be a standard–some lawyers probably cannot help themselves and make a few edits!

Friends of mine who practice in this area have told me that they have changed from attaching the Master Document, to incorporating it by reference, and more recently they are executing the term sheet as if the Master Document were incorporated. This may be in part to prevent the terms from being edited.

Would you see a doctor who does not use current diagnostic and therapeutic treatments? If you answer yes, perhaps you are are a lawyer who has yet to master legal technology. 

Technology Changes Law Firm Management by Jeremy T. Elman, McDermott Will partner (Law Firm Partnership & Benefits Report newsletter, 9 Mar 2009) is a good but surprising article. Elman writes how legal tech has changed law practice: “the road to partnership … is increasingly paved with computer clicks.” He suggests ways for lawyers to gain comfort with technology.

The surprise is that the legal profession stills needs such articles. More client focus on how lawyers practice would unveil the inefficiency of the hold-outs. Perhaps the current economic crisis will finally cause this to happen.

Clients must pay attention to how their law firms work. More savings may flow from changing how lawyers work than from bargaining down rates. BigLaw firms are cutting staff. Are the changes good for general counsels? 

The demand for legal services has plummeted, so laying-off lawyers and staff is a painful necessity. But do some lay-offs lead to better value for clients than others? To make this big topic manageable, let’s focus on secretaries. Since lawyers started using PCs almost two decades ago, thus changing how they use secretaries, few law firms have rationally managed the lawyer to secretary ratio.

Legal secretaries, other law firm workers getting laid off (Philadelphia Business Journal, 20 Feb 2009) reminds us of this. For example, Cozen O’Connor CEO Tad Decker says the firm “had a lawyer-to-secretary ratio of less than 2-to-1 and the layoffs will allow the firm to assume a ratio more in line with its competitors.” In my view, ratios of less than 2:1 typically suggest a firm has not been managing its secretaries well.

From a client perspective, however, potential secretarial over-staffing is not a problem and may even be a benefit because it may mean lawyers bill less time for ministerial work that they delegate to secretaries.

The opposite, however, is not true. Clients should care if law firms have too few secretaries. The article quotes recruiters who say some firms are now moving to 4:1. This may be too little support. If so, lawyers might bill for work that they could otherwise easily delegate: typing, formatting, scheduling, preparing overnight parcels, etc. Clients could end up paying more than they should.

There may not be a magically correct ratio but it is clear that firms should analyze needs and staff consciously to make sure lawyers receive the right level of support. For those interested in more on this topic, see

• Managing Law Firm Secretarial Ratios the Right Way (my 30 Dec 2008 blog post at Integreon)
• Toward More Rational Law Firm Lay-offs (this blog, 12 Feb 2009)
• An Interesting Take on the Future of Legal Secretaries (this blog, 28 Jan 2009), reporting on a Jordan Furlong blog post

I recently reported that many inhouse counsel lack the tools to manage outside counsel properly (The Sorry State of Law Department Legal Tech). The situation is even worse than I thought a knowledgeable reader reports. 

Rob Thomas is Vice President, Strategic Development | Serengeti Law, sent an e-mail note that, with permission, I reproduce below. Some thoughts first.

Serengeti provides a hosted matter management system (including e-billing) for corporate law departments. The benefits of matter management need no explaining (if they do, I give up).

I will digress briefly to comment on hosted systems: Serengeti is the first legal web-based system I remember. What was an “Application Service Providers” is now just “hosted” (or “Software as a Service (SaaS)” if you are techie). That means a turn-key system. All the law department needs is a browser and Internet connection – no complicated installs or IT maintenance. Companies large and small use a wide range of hosted systems. They are particularly attractive for law departments, which frequently lack proper IT support. It also makes for quicker connection with law firms since there is nothing for them to install and usually no vendor charge for submitting electronic bills, status updates, etc.

Serengeti works with ACC on a survey of inhouse counsel. Here are Rob’s comments:

I wanted to let you know that the situation regarding law department use of technology is actually much sadder than the already low levels you described. When you look at a broader in-house base, which consists primarily of smaller law departments, there is even less technology used than reported in the ILTA survey (which probably covered larger, more tech savvy law departments who have the time/interest to participate in ILTA).

In our most recent annual survey of ACC members (about 80% of which have fewer than 10 lawyers), only 29% have a matter management and/or e-billing system. Another 36% manage by manually keying information into spreadsheets. So one-third have no system at all, not even spreadsheets. And, as you pointed out, even those who have systems probably aren’t using them effectively. This is particularly so for older matter management systems that require manual data entry.

Law departments can’t manage what they can’t see. With the adoption of hosted online matter management systems like Serengeti, there is really no excuse left for law departments that do not manage their vendors. It’s hard to understand how the GC can be in this position when all other corporate departments use project plans, budgets, and track of progress/results. Even the excuse that “my law firms will resist” is a red herring: we find very few law firms object because most are already using these systems for other clients.

I agree that it is time to stop complaining about ever-increasing law firm rates, and to put systems in place that require budgets, track ongoing budget performance, and assess results. Using such systems, in-house counsel can link outside counsel compensation to the value that they provide, not the number of hours that they spend. Until those who write the checks are willing to require such changes, they will continue to spend more than their activist peers.

Update (9 Mar 09): In Without spend management software, law departments get their data from accounts payable, law department management consultant Rees Morrison comments on this post. He points out that many law departments can rely on account payable for the data they need to manage outside counsel.

If you innovate, earn recognition. 

The College of Law Practice Management (I am a trustee) sponsors the InnovAction Award. InnovAction honors innovation in law practice management. Law firms, law departments, and other legal service providers (but not vendors) can apply. Innovation can range from creative office design, to technology, to a marketing campaign. New this year, applicants can win Honorable Mention.

Take a moment to review the InnovAction web site and consider submitting an application. For more information:

• Prior InnovAction winners.
• About the College.
• How to Enter for 2009 and download InnovAction Entry form.

From the College of Law Practice Management, here is more information:

From Procter & Gamble to IBM to Federal Express, from nylon to photocopiers to the electron microscope – some of the world’s most well-known companies and products were born in past recessions and depressions. The current economic crisis will be no exception – when times are tough, forward-thinking people will find ways to do things better. That applies especially to the practice of law.

In the grip of an historic recession, the legal profession is finally taking innovation seriously. Innovations in the business and practice of law, once rare, are starting to emerge all over the world. From new billing and compensation models to original talent retention strategies to high-efficiency client services fuelled by information technology, law firms are finally getting it: innovation is the key to triumphing over both the downturn and the competition.

Is your law practice one of the profession’s leading lights of innovation? Have you or someone within your firm with vision and courage led a groundbreaking effort to practice law differently? Have you developed a new and better way of serving clients, a breakthrough way to find new business, a truly innovative way to value and sell your services? If so, then you deserve the recognition of lawyers and clients in your region and worldwide. And if so, the College of Law Practice Management (www.colpm.org) wants to hear from you.

The College of Law Practice Management is now accepting entries for the 2009 InnovAction Awards at www.innovactionaward.com. Awards are presented for law practice innovations within law firms and legal departments that have never been done previously, or that take an existing innovation to the next level of originality and performance. Complete contest rules and application forms can be found at http://www.innovationaward.com; the Hall of Fame display of previous winners is at http://www.innovactionaward.com/halloffame.php.

There’s still time to be a market leader in innovation. Enter the InnovAction Awards today and show the world what your firm or department can do.

In Latest Round of Cuts, Dechert Lays Off Staff Attorneys (The Legal Intelligencer, 26 Feb 09) raises the question of how clients should staff matters. 

The article discusses the economics of staff attorneys versus associates. A more interesting question is the functional differences between them and cost trade-offs, which is is a subset of the more general issue of how best to staff a matter. Articles on law firm economic pressures or GCs complaining about cost crunches are legion (see, e.g., Feeling the Pinch or Budget Blues in the March issue of InsideCounsel).

Where are the articles or case studies with real analysis of a rational approach to staffing matters? Should a GC want staff attorneys on her matter? Or associates? Or contract lawyers? Or offshore lawyers? The answer varies by matter and one factor is the law firm mark-up on each resource. In my May post The Right Resources to Solve Legal Problems, I proposed a framework to optimize staffing.

Broken record time: whining about costs and tinkering with rates only goes so far. GC and law firms must think hard about how they staff matters. Of course, interests may not align. The optimal mix from the GC perspective may be far from the profit-maximizing mix for the law firm. And therein lies the rub: reconciling the tension. But guess who’s in the driver’s seat now. Will GC start driving?