From the introduction, we get some hints:
Key to success of [a large Blackstone deal, creating the world’s second largest vodka company] was White & Case’s global footprint, internal collaborations, and the ability to show what the client considered unusual behavior. Tom Lauria, the White & Case partner on the deal, was described as an “atypical” lawyer. […]
In early FT Innovative Lawyer reports, atypical behaviour meant anticipating instructions as well as being commercial and intensely committed; in effect, being in the driving seat of the car. But as the bar to entry rises, it has begun to mean having a key role in designing that car. […]
Brad Karp, chairman of Paul Weiss, says, “We had another record-breaking year but we understand that we cannot be complacent in this market. The stakes are higher, the problems more intractable but the opportunities are more transformative.”
First of all, I warmly agree with Brad Karp—indeed, his words about high stakes and gnarly problems, but bringing enormous opportunities with them, succinctly capture the most important features of our landscape today. Yet I have to laugh when the most flattering thing a highly sophisticated client can say about a lawyer’s standout performance was that it was—”atypical”—presumably for that poor category of lost souls also known as lawyers.
Moving right along, we find Simpson Thacher advising Smithfield Foods (the US pork producing colossus) in its takeover by Shuanghui International of China for $4.7-billion plus assumed debt. No national security implications were anticipated. As Larry Pope, the Smithfield CEO, quipped, “We’re not exporting tanks and guns and cyber security—these are pork chops.” Not so fast. Turns out the US Treasury thought sausages were an issue of national security. I’m actually not surprised. As the FT acknowledges, this deal (which did go through) could bring Chinese flags to a small town in rural Virginia.
Next, Cravath, representing Vivendi, created an important precedent in securities litigation by rebutting a “fraud on the market” presumption, a judicially blessed theory that had dominated securities class action jurisprudence since 1987. Basically, the doctrine permits plaintiffs to achieve class action status without having to prove they made investment decisions in reliance on the defendant’s alleged misstatements.
Kudos due indeed. I’ve never been a fan of the “fraud on the market” theory, which seems to disembowel reliance, materiality, and indeed the epistemological bedrock of the very notion of fraud itself, but I’m struggling with what’s innovative about zealous advocacy for one’s client. I won’t go on in this vein.
We do come to an interesting creature distinctively different from the rest of the innovators presented by the FT, however:
Dewey & LeBoeuf continues to cast a shadow, nearly 18 months after its demise. The biggest law firm failure in history had many causes; perhaps one was its opaqueness over its financial position, not only with the outside world but also with its own partners. That it misstated its financial health to closely watched annual rankings compiled by the American Lawyer magazine was one shocking detail of the tragedy, but one that revealed a wider truth about how unaccountable firms’ financial reporting is, particularly in the US, where if figures are released at all they can consist solely of revenue and profit per partner.
In that context, K&L Gates’ decision to publish detailed annual reports of its finances to a US Securities and Exchange Commission reporting standard – from bank debt to overheads and partner capital – was groundbreaking among its peers.
While it is true that UK-headquartered firms have long published their results with a similar level of detail, particularly those that are structured as limited liability partnerships with certain reporting obligations, this culture has not permeated the US. Perhaps the bold move by K&L Gates will help change that.
When I think “innovation,” this is the kind of thing I’m thinking about. I wrote about it quite approvingly last February when it was released (“We Can Do Better”). Certainly, K&L’s move was innovative in the dictionary sense of not having been done before. But it’s also the essence of what innovation means to me: It’s a business innovation, not a legal innovation. Here’s a bit of what I had to say about it at the time:
As a securities lawyer, I’ve read my share of financial disclosure documents, but I’ve never seen one in our industry-until today, when K&L Gates released its 2012 results (the figures were unaudited on the release date, but they will be audited shortly).
When you think about it, this is a preposterous state of affairs.
- We are the profession that excels at disclosure, but we don’t apply that liberating discipline to ourselves.
- We are, actually, more transparent in terms of our internal compensation practices (whose business is that?), to our clients, prospective recruits (partners and associates alike) and in a weird way to ourselves, than any industry I can think of not subject to the Freedom of Information Act, yet we have no control over the message or the medium it’s delivered in.
- We have allowed this parlous state of affair to develop while standing mutely by, assuming we had no power over what the world knows about us.
- Meanwhile, the publishers of all this disclosure and the associated ratings, unintentionally I’m willing to grant them at first but with exhaustive knowledge of the power of their decades-long work at this point, say essentially that they’re on the path history set them on and they’re only the messenger, after all. (And did I mention they note they didn’t invent invidious envy?)
We’ve been limited to the AmLaw rankings for 25 years, a quarter of a century. Now, the trouble with ratings systems has long been known, and even popularized two years ago by Malcolm Gladwell in the pages of The New Yorker (“The Order of Things“).
And I added:
Rankings mislead, and one-dimensional rankings intrinsically mislead. (See: Gladwell, supra.)
Isn’t a list of firms by gross revenue (the venerable Fortune 500) kind of fascinating? Undoubtedly, but beyond the mere impression of one sort of relative size, what do we really learn? Nothing. For example, Wal-Mart’s gross revenue according to the 2012 Fortune 500 was $447-billion, making it #2 on the list. Exxon was #1 at $453-billion.
Think for just a second.
How different could these businesses possibly be? Wal-Mart sells at a very small retail markup stuff that somebody else made. Exxon has to find, produce, transport, refine, and transport again everything it sells, creating and maintaining in the process one of the most complex supply chains ever created, traversing some of the world’s nastiest neighborhoods, and requiring sophisticated and temperamental technology.
Calling one #1 and the other #2 is beginning to look a bit nonsensical, is it not?
But a law firm is a law firm is a law firm, right?
Not in my book.
The same sense of being radically underwhelmed hit me. it felt different to the earlier UK based awards too. different levels of innovation? Up to a point, I suppose. different audiences for the reports too?
I can understand you feeling underwhelmed but the question to ask is, how much innovation can we get on a per year basis?
This is like the idea that values can only go up and never come down. Sure it might seem a little underwhelming but nothing goes up forever.
It’s more like a sine wave some times things are truly innovative and spectacular but other times there needs to be the quiet moments to give innovation a chance to germinate.
Bruce — you are so right. What largely passes as innovation in the legal community is similar to a a screen door on a submarine. The industry as a whole is not just built on, but depends upon, inefficiency perpetuated by client fed fear of uncertainty and legal service provider massive resistance to change. The law firm industry itself will not change because it can’t — the structural resistance and impediments in current firm compensation and governance makes such radical business model change nearly impossible. Mergers will continue, but they will focus on increasing revenue as opposed to reducing costs — and as such, they will create large entities where those structural impediments are magnified as opposed to addressed.
This is an industry ripe for the creative disequilibrium of new legal service delivery models. Whether arising from Axiom, RIverview, Clearspire, Valorem, Summit, PLC or others, a category killer will emerge that will shake the foundation of the industry. Big Law will survive in some form, and Boutique Law will prosper in others, but the mass of work will be done in the future by highly efficient legal factories where the normal blocking and tackling most clients need on a daily basis will be delivered by ai-driven expert systems. The truly distinguishing feature of lawyers — their judgment — will continue to be needed, but not for everything we today call a legal issues.
As the industry migrates to more efficient providers for the lower boxes in my 2×2 legal services model (process and content), the need for upper boxes will simultaneously wane and undermine the cost structure of most firms. It will be an ugly and uneven transition for those caught in the paralysis of the status quo — but the transition itself is inevitable.
As Confucius might have said — the answer to the problem is simple — but those with the power to solve the problem find it quite difficult.
Cheers — Jeff
The brilliant and iconoclastic Tim Bratton also had a few thoughts about the FT’s Innovation Awards–Bruce.
International expansion, brainstorming sessions and competition advice are not examples of innovation, says Tim Bratton
As one general counsel put it to me recently: “The reset button has been pressed on the legal profession.” But while the button has certainly been pressed, the machine has not yet rebooted.
If one needed to look for evidence of the reset, it was given by Mark Harris, CEO and founder of Axiom Legal, who received a special achievement award at the FT Innovative Lawyers Awards in October.
If anyone had suggested 10 years ago that in 2013 a US start-up would be winning legal awards ahead of – and, more importantly, winning work from – the magic circle and other leading City firms, they would have been laughed out of the Square Mile.
But if one wanted to look for evidence that the machine has not yet rebooted, then it’s worth taking a closer look at a few of this year’s other FT Awards entries. While many were truly innovative – and congratulations must deservedly go to the winners – a handful strike me as ‘business as usual’, not innovation.
Examples include ‘providing cutting-edge competition advice’, holding ‘a one-day brainstorming session’ and ‘international expansion’. Entries such as these demonstrate that while the words ‘legal profession’ and ‘innovation’ are not quite paradoxical terms, they do not always fit comfortably into the same sentence.
Many leading thinkers and practitioners have talked about the systemic changes experienced by the market over the past 10 years. But if firms continue to submit ‘business as usual’ entries for the UK’s leading legal innovation awards, it surely illustrates just how far the profession has yet to travel on its innovation journey.
It is too easy to lay the blame solely at the door of the legal service providers. But, barring a few exceptions, any firm that thinks it can continue to rely on a model that is simply the continued provision of traditional legal services will at some point suffer a rude awakening.
The market’s new ‘disruptor brands’ such as Axiom and Lawyers on Demand (LoD) are here to stay. As clients realise the benefits that flexible legal resourcing can bring to their teams and organisations, many leading law firms are reassessing their offerings and adapting to these new upstarts. They are doing so either by entering the market themselves or accepting the business case for working with those alternative service providers on some projects.
Ultimately, though, the providers will not reshape the landscape themselves. Clients will play the instrumental role in making sure that supply meets demand.
While clients understandably demand ‘more for less’, the most innovative general counsel are also open minded about how they are willing to work with their legal service providers. More for less with no change to service provision simply will not work. More for less with structural service change will.
Over the past seven years, LoD has seen that many clients are already alive to this and client demand had led to significant disruption of the legal marketplace. LoD was an early-stage service that was conceived to meet that early disruptive demand, but we are now facing the challenge of seeing who wants to disrupt the disruptors.
Whether launched as a standalone service or with the backing of an international law firm, there is an ever-lengthening queue of alternative legal service providers eager to compete. LoD’s secondment model remains an innovation success story, but we know we won’t ‘win’ unless we continue to evolve our service offerings and pricing structures in line with market demand and increased competition.
‘Put yourself in the client’s shoes’ is a constant LoD mantra and service development is a daily theme in our office. While services like LoD’s are forcing global law firms to reassess their business models and not rest on their laurels, competition from the other flexible resourcing services means we at LoD are constantly evaluating out product to make sure we continue to match client demands.
I’d like to think that, as the FT Awards evolve, the bar will be set much higher and we won’t see even a handful of ‘business as usual’ entries and instead will see people and practices pushing the boundaries of innovation. To make this happen, the profession (both suppliers and clients) needs to think about what it wants the future to look like.
As Harris put it on the night: “Bigger is not better; better is better.” Indeed, but what is better? That is a question law firms, alternative providers and in-house lawyers all need to answer. Because if they don’t, someone is going to answer it for them and they will lose far more than the chance of winning an award. Change does not happen by talking about innovation – it comes through creative thinking, brave steps and hard work.
Once the machine does fully reboot, the game could be up for those who don’t play better. But the good news is that those who embrace change – however uncomfortable they feel at first – have the potential to be game-changers. I see plenty of opportunity ahead.
Tim Bratton is practice development director at Lawyers On Demand and blogs at thelegalbratblawg.