"The Legal Industry's Road Ahead..." Interview conducted by High Performance Counsel

[Preliminary Note: For a while now, many fantastic online legal industry resources (e.g., Three Geeks and a Law Blog, Legal Rebels, BNA Big Law, InsideCounsel, Above the Law, LawSites and a host of others) have been keeping legal industry leaders informed with excellent insights on cutting edge developments. You can never have too much excellent content and the good news is that a new thought leadership resource, High Performance Counsel recently launched largely due to the hard work of David Kinnear (see HPC weblink here).

David has assembled an incredible group of luminaries and thought leaders in the legal industry. Below is an excerpt of an interview with HPC. Usually, my posts are intended to be academic and professional in nature, rather than self promotional. Because it's an interview, this one walks the edge, but I hope you still find many thoughtful insights in here anyways.]

Tell us a bit about yourself and how you came to be in the legal business?

The legal business always has been a part of my life. My father was a successful partner in a “white shoe” Wall Street firm called Reid & Priest which eventually merged with a west coast firm called Thelen Marin to become Thelen Reid & Priest. Then, he served as General Counsel for a major public utility. What my father did always intrigued me. His passion for the law and solving problems prompted me to become a lawyer. Unlike most people, I actually loved law school and embraced billing 2,500 hours per year as a transactional associate in AmLaw50 law firms. Learning how business and law intersect has always fascinated me. Quite ironically, about 15 years after my father passed away, I made partner at the same firm, Thelen, where he first made partner. Thelen was a law firm full of great people and talented lawyers but it had a hard time finding its institutional identity and place in the legal market. The tumult of the 2008 fiscal crisis was too much for Thelen to bear and it dissolved in 2008. That was no fun. One of my Thelen partners and I built an $8-$10 million cross boarder finance practice and we took our practice and team to Pillsbury Winthrop Shaw Pittman where I practiced for five years after Thelen folded. Lots of lessons can be learned about how the legal industry operates can be learned by watching a law firm fail.

What do you do for a living right now?

In 2014, I quit my job as a partner at Pillsbury and founded Legal Decoder in 2014 because I wanted to take on a new challenge and I recognized early on where the legal industry must head. It wasn’t brilliance or divine inspiration on my part. If you just listen to what the market says, the market will tell you how they feel and what they want. Clients are generally happy with outside counsel’s substantive knowledge, technical advice and judgment and responsiveness. The service delivery aspects of things handled by outside lawyers are basically fine. However, and this is a BIG however, clients abhor the lack of predictability, transparency and efficiency when it comes to pricing and evaluating outside counsel’s services. I felt and observed my partners struggling with the same challenge. The inability to accurately price and economically evaluate legal services hampers law firms in a big way, too. For law firm partners, pricing matters for clients winds up being a complete crap shoot. Paradoxically, clients and their law firms want the exact same things – predictability, visibility, efficiency and value. Until Legal Decoder came along, there was no technology or smart data analytics tools that allow clients and their law firm to simply and accurate price and economically evaluate legal services to drive better predictability, visibility, efficiency and value.

What has been your greatest triumph and your greatest success in the legal services field and what did you learn from each?

My greatest triumph was growing a very successful legal practice from scratch. It is no small feat so I have a great deal of respect for rainmakers in private practice. When I made partner, I had only three or four clients that I had originated on my own as an associate and, at Thelen, every partner at the time was clinging tightly to his or her book of business so no institutional clients were passed onto me. Every one of the 55 or so clients I jointly represented with my partner at the peak of our practice could be attributable only to our joint biz dev efforts, hard work and tenacity. The lesson I learned is hard work pays off.

As for my greatest success, only time will tell as to the magnitude of success, but I am proudest of my decision to have the guts to walk away from a lucrative legal practice, take a risk and tackle a problem in a way that is transformative for the legal industry. The skills, knowledge and experience that I have gained from starting and running a business, which layer on top of my legal experience are, to me, more valuable than a Harvard MBA. The best lesson I have learned that life is best lived by taking smart risks, being willing to make mistakes, learning, adapting and pushing boundaries and operating outside of one’s comfort zone.

Change is hard, especially for lawyers who have been doing the same things the same way for the past 50 years.

Do you think the legal industry is headed in the right direction, the wrong direction – or which direction?

I think the legal industry is FINALLY heading in the right direction. The industry has been transforming due mostly to external forces, like innovative technologies, alternative service providers and a mismatch of supply and demand. Change is hard, especially for lawyers who have been doing the same things the same way for the past 50 years. Until recently, there hasn’t been much incentive to change so it has been a slowly evolving process which now has titanic momentum. We are watching the legal industry getting reshaped and re-made before our eyes. The next generation of legal industry leaders, whether at law firms or leading legal departments, have now ascended to positions of power and influence and they understand the current market dynamics much better than their predecessors. They realize that lawyers are not going to make the same money if they practice law like law has always been practiced. They are embracing change and innovation. Technology, data analytics and legal process management are becoming the norm and legal industry leaders, unlike their innovation-phobic predecessors, now demonstrate a readiness for change.

You’re known for innovation and have been an inspiration to many. Who inspires you – and why?

Two groups inspire me. One group more on the personal side and the other more on the professional side:

Personally, my family, mostly my wife, inspire and propel me towards success because of their support and encouragement from the time I started Legal Decoder through today. Starting a software and data analytics company was a risky proposition but the market is now really embracing and benefiting from the value Legal Decoder’s technology and data delivers. My wife has been fully supportive despite the risk and hard work, but she is savvy with a sharp business mind and instincts so that’s a supreme benefit.

Even though they are brilliant business minds, it’s a bit cliché to say Steve Jobs or Jack Welch or Peter Drucker are inspirational. Their success stories and books are great but they really haven’t been an inspiration in the truest sense. Professionally speaking, about five or six of my investors in Legal Decoder truly inspire me. They have started businesses themselves and understand very well the emotional rollercoaster of entrepreneurship. They provide invaluable support, guidance and encouragement. They believed in me and backed me when I approached them a few years ago and told them where the legal industry was heading and the value of Legal Decoder. During the past few years, they’ve observed firsthand elements of dysfunction in the legal industry and are true believers in the inevitable changes facing the legal industry that I have been preaching about for a long time now. They bring strategic ideas to us, they lend support and encouragement and are actively helping to propel Legal Decoder to the next level.

What advice would you give to the younger generation contemplating law as a career?

There will always be a place in the world for lawyers so any young person contemplating a career in the law should not be negatively swayed by the sensationalist hype about the apocalypse happening in the legal industry. Law school does wonders to create analytical skills that benefit someone in many, many aspects of life. And the socially redeeming aspects of justice and the “rule of law” cannot be emphasized enough. Unlike in the past, money is 100% the WRONG reason to contemplate a career in law. The next generation of lawyers will continue to make a pretty a good living practicing law, but it’s not going to be like it has been. Law school is not cheap so it’s important for anyone contemplating to do a serious cost/benefit analysis in terms of how they want to live their life.

How deep do you think will be the inroads of technology in the industry?

Very deep. “Robot law” or the rise of the machine lawyer is a myth. Technology will not replace lawyers but will augment how they practice. Technology simply cannot do aspects of what lawyers do. At the moment, a machine cannot reason by analogy like lawyers do. Software cannot account for precedential value, from a business perspective, of taking one course of legal action as oppose to another. Technology has its limitations. Lawyers who embrace technology and data analytics to augment their practice and inform their advice will have a competitive advantage. Innovative technologies like we’ve built at Legal Decoder can help lawyer make strategic decisions. Just by way of example, our technology can help a lawyer develop a strategy around how many key witness depositions to take in a current case by evaluating how many key witness depositions have been taken in previous cases and correlating that data to outcome. In some respects, historical data is a quasi-surrogate for a lawyer’s experience. Someone needs to understand the data and that’s where a lawyer fits in. His or her judgment is not replaced by a machine. Instead, that judgment is informed by a machine. That is where the legal industry is heading.

In ten years, do you see an industry much as it is – or do you see new players, new technology and an altered state?

In economist terms, the legal industry currently is a mature industry. Earnings are barely stable, revenues are increasing only because of hourly rate hikes, demand is flat and there are zero grow prospects for law being done the way it has been done for the past 50 years. The industry’s maturity level makes its economic model unworkable. Anyone who clings to the vestige of a bygone era of the legal industry will go the way of Thelen and, believe me, that’s not the place to target. The wave of change in the legal industry today is fast and accelerating with a tsunami-like force. Innovative technologies will make lawyers work better, faster and more efficient, effective and accurate. Disaggregation of legal work will continue. Legal industry leaders that embrace and plan for change will thrive. Those who do not will fail over the next decade. It’s really a binary analysis.

Are consultants and lawyers looking increasingly similar? Should the distinction continue?

Absolutely. There’s an unmistakable blending of business consulting services and legal services. We’ve already seen PWC and other consulting firms like Elevate, Exigent and Axiom encroaching on the turf where only traditional law firms have played. Technology and data has leveled the playing field and de-mystified the practice of law in many respects. That said, a clear distinction is critical in order to maintain the quality of legal advice. There are many, many areas where legal services and advice should and must be delivered by lawyers, not technology, consultants or alternative service providers. Holding a license to practice law means a lot and it should be respected in order to do drive the best results for internal and external clients.

The greatest opportunity is to use innovation tools, technologies and data analytics to deliver better, faster and more valuable legal services to clients.

What are your thoughts on the increasing availability of data to guide client-side procurement of legal services?

Your question goes to the heart of why Legal Decoder exists. The biggest challenge in the legal industry is pricing uncertainty. It’s a real problem and a real big problem. Every year the legal industry is plagued by $60 BILLION of pricing uncertainty, waste and inefficiency. $60 billion is up for grabs as between clients and their law firms. Because of innovations in the legal industry and other competitive forces, clients don’t REALLY know what they should be paying outside counsel and law firms don’t REALLY know what they should be charging clients. This is the problem Legal Decoder solves. Our software analyzes legal spend data and granularly pinpoints precise tasks handled by legal professionals – like drafting a 10-K or reviewing a motion to quash or analyzing a Phase I environmental assessment – and identifies the level of legal professional who should handle the task and how long the task should take. Some things can never be “priced” for lack of a better word, but 70% of what lawyers do falls into patterns that can be evaluated and statistically validated. Our software helps legal industry leaders, both law firms and clients, more accurately and predictably price and economically evaluate legal services. Both clients and law firms want better predictability, visibility, efficiency and value when it comes to legal services and Legal Decoder’s software provide the data and benchmarking capability to drive those results.

Lawyers have typically regulated to keep non-lawyer investors out but that’s a two-edged sword these days. What are your thoughts?

It’s a tricky question that needs to be addressed at the legislative level here in the U.S. The UK and Australia have developed a framework to allow for non-lawyer investment in law firms. In the U.S., chances are that the LPOs will force the issue. The confidentiality and fiduciary duty issues loom large when it comes to whether a lawyer’s duty to the client take precedence or whether a lawyer’s duty to an investor takes precedent in the inevitable event of a conflict. I’d think that the higher duty needs to be owed to the client because investors come into the mix eyes wide open, but reasonable minds could differ. From a business perspective, a law firm’s economic model would have to change to please investors. No longer will profits be fully distributed at year end. Instead, to make long term investors happy, a portion of profit will need to be re-invested. With lateral movement and other market forces, that is a titanic mindshift for law firms. Outside investment will likely arrive one day, but it’ll require a lot of fundamental changes in the industry.

What’s the one most significant factor that will drive change in your view?

Money. People change when their livelihood is in play.

Are we seeing the demise of the “profession” and the real emergence of the “business” of law?

I believe so. And I also believe it’s a good thing for anyone who cares about the long term prospects of the legal industry. This is coming from someone who was an equity partner at a law firm that filed for Chapter 7. Law firms must operate like businesses because that’s what the industry now requires. For better or worse, legal services now are largely viewed as less “bespoke” and individualized and are correctly perceived as moving towards mass customization. Due to external forces, technology and greater access to information and online advice, the professional mystique of the legal industry has been de-mystified in many, but not all, respects. The same way a surgeon continues to be viewed as a professional despite having his or her medical practice augmented by technology, lawyers will continue to be viewed as “professionals” because of their training and expertise. This will be true even when the legal industry has more business-like attributes than profession-like attributes

What do you consider is the greatest challenge facing the industry?

Pricing uncertainty is the greatest challenge in my view. Lawyers are still excellent at practicing law. They just don’t know how their legal services should be priced in today’s transforming environment.

What do you see as the greatest opportunity for the sector looking forward?

The greatest opportunity is to use innovation tools, technologies and data analytics to deliver better, faster and more valuable legal services to clients. Whether it’s using legal process management strategies and techniques, better research tools or predictive data analytics, the industry leaders who embrace change and innovation will realize the best results and capitalize on opportunities , many of which are yet to even be envisioned, to realize optimum results.

Do you think law can improve its track record on diversity and inclusion? How?

Yes, of course. When I started practicing law, most firms were led by middle aged white guys. Since then, there have been tremendous strides towards greater diversity in the profession with women and minorities assuming leadership positions in the industry, but it’s still not where it needs to be. In order to do anything with excellence, there needs to be a diversity of approach, experience, thought and analysis. That is how the best results are achieved and the legal industry must improve on its track record by being more diverse and inclusive. In my view any change in the legal industry, including improving diversity and inclusion, starts with the client.

Will the current regulatory framework around law help or hinder it in the future

Setting standards for those in the legal professional is important. The bar exam and licensure should never disappear in my view. It’s not about a perfunctory rite of passage. Instead it’s about adhering to standards of excellence which ultimately benefit clients and people who need legal help and rely on lawyers for that help. The regulatory framework is not an overly burdensome framework and it critical to success. I believe it’ll help the industry in the future.

Who do you think are the greatest influencers on the industry these days?

Hard question. I think there are two groups of influencers that will shape the legal industry over the next decade. The first group includes business professionals that are driving law firms and legal departments to operate more like a business. At law firms these people have titles like Chief Pricing Officer, Chief Practice Management Officer, Chief Process Management Officers and the like. At clients, it’s Legal Operations Professionals. The mark that this group is making on the industry is unmistakable and very positive. They are very, very sharp experts and lawyers can benefit from seeking their advice and leveraging their expertise.

The second group of influences are newer companies in the legal tech space. My peers and counterparts are continuing to develop next generation legal centric technologies that make the practice of law and outcomes realized by clients better, faster and more efficient. Law firms will operate more profitable using innovative solutions and have better client attraction, client retention and client satisfaction rates.

If you had to do it all over again, would you? Or what would you do differently?

No regrets. Four years ago, I identified a transforming industry with long-standing, systemic challenges that needed to be fixed. Legal Decoder is fixing some big industry wide problems for law firms and for clients. We’re just at the start of the movement.

If a law firm was a startup pitching for investors, would you be an investor?

Sure, I’d invest if the law firm leadership fully embraces the need for change.