Gather forty of the nation’s leading general counsel, law firm partners and legal academics in a San Diego conference room. Add one economist. Welcome a U.S. congressman and a British solicitor via videoconference. Then, lob in this piece of raw meat: legal regulations are antiquated, law school accreditation requirements are misguided, and Big Law’s billable hours are corrosive. Discuss.
Or, as conference organizer and University of Southern California Law School Professor Gillian Hadfield (who herself has a Ph.D. in economics) said in her remarks that launched one-and-one-half days of spirited conversation: Law as practiced in the United States today is expensive, complex, slow, risk-averse, fragmented and static. It needs to serve a modern economy that is fast, adaptive, boundary-crossing and integrated. Her charge to the group was this: What does our changing economy need from its legal environment? How do we spur innovation? Is it through the bar? Judiciary? State legislatures? Congress?
“For some,” added University of Pennsylvania Law School professor and conference co-organizer Stephen B. Burbank, “rules of professional responsibility define the very essence of the profession; for others they are a necessary foundation that, if it did not exist through state-sponsored regulation, would have to be created by contract. For still others, they are a smokescreen used by lawyers to justify anti-competitive behavior that enriches lawyers while depriving clients of cheaper and more innovative solutions to their problems.
“There is, I expect, some truth in all of these positions.”
The conference, “Leading Legal Innovation,” was organized under the auspices of the Southern California Innovation Project at USC’s Gould School of Law, with funding from The Ewing Marion Kauffman Foundation. Participants were invited to attend by Hadfield and Burbank before the onset of the current economic turmoil. Their meeting occurred in mid-December, as a government-in-transition grappled with a market meltdown and credit crisis.
Some saw the deepening recession as the latest influence toward inevitable de-regulation of the legal profession. Others pointed to de facto extra-regulation accommodations that were already being practiced. And at least one, Lawrence J. Fox (L’68), partner at Drinker Biddle & Reath, suggested there really was nothing new under this latest economic cloud.
“All I can say is, ‘Here We Go Again,’” Fox wrote in his pre-conference brief. “The demise of Arthur Andersen was not enough. The repeal of Glass-Steagall and its folly of an aftermath were not enough. Alan Greenspan’s admission that he was wrong when he relied on reputational and economic self-interest to let the markets operate unfettered was not enough. No. Now we are told that lawyers and law firms – particularly those especially worthy impecunious elite law firms – should be unshackled from 20th century state-by-state professional responsibility rules, excused from fiduciary obligations of confidentiality and loyalty, unburdened by antiquated rules of professional independence, and, in the name of progress, they should be allowed to bring in outside non-lawyer owners to provide the capital lawyers apparently cannot provide themselves, as these law firms are encouraged to become part of huge service provider conglomerates like Citibank, Lehman Brothers, or perhaps AIG. Maybe GM could have law subsidiary too,” Fox suggested.
In this gathering, though, Fox was admittedly odd man out – or, as he titled his brief, “A Fish out of Water” – simultaneously celebrated for his consistency and criticized for his inflexibility. Robert F. Cusumano (L’80), general counsel for ACE Insurance, tried to stake out a middle ground, calling for regulatory changes that would bring more efficiency to litigation and to the discovery process, in particular. But Cusumano wrote in his conference brief that “innovation in the delivery of legal services should build upon, rather than eradicate, the centuries-old traditions of regulated expertise, independence and ethics that the professional Bar has built. While there is no doubt that these traditional structures can be abused and that they can be costly and somewhat anti-competitive, the current regulatory environment provides a firm and universal basis from which lawyers and clients managing problems can instill their own cultural dynamism and their own market innovations.”
And then there were those who called for eradicating the current regulatory system and starting over. The group’s lone economist, Caltech professor and Yahoo Research vice president Preston McAfee, put it this way: “When we deregulated the airlines, no one predicted the incredibly effective and efficient hub-and-spoke system. Too many lawyers want to know, ‘What precisely will happen if we de-regulate?’ But you don’t need a special reason to de-regulate. Instead, you should regulate only if you have a compelling reason to do so.”
Consensus was elusive and the group – like diplomats huddled around a conference table (this one was square, not round) – failed to issue a joint communiqué. In fact, there were real differences of opinion on all points. But if there were some ideas that seemed to gain at least a plurality of support, they included these:
- Multi-jurisdictional practice. Members of the Bar in one state should be able to practice in any state, as long as they agree to abide by local rules. Federal preemption may be required to accomplish this.
- Litigation. Too much litigation is too expensive, primarily because of exhaustive discovery.
- Court reform. Rebecca Love Kourlis, a former justice of the Colorado Supreme Court who is executive director of the Institute for Advancement of the American Legal System, pointed out that judges have little incentive to control cases and that the Bar sometimes comes down hard on judges who efficiently manage cases through the system. The notion that court performance metrics must focus on measuring time to disposition alone is not only misleading, it can actually result in bad outcomes. According to Kourlis, this narrow view only encourages settlements, which in turn reduce trials and appellate decisions that contribute to the common law, making it harder for in-house counsel to assess risk and driving up legal costs. Kourlis contends that other measurements must be built into the performance assessment process and the Bar must demonstrate support for these criteria. Those other measurements should emphasize procedural fairness, such as: was the judge prepared for the hearing or process and respectful of participants; was he or she timely in moving the case along and in rendering decisions; and, were those decisions clear?
- Billing. The billable hour emphasizes effort over results and is leading many businesses to ramp-up in-house counsel or to out-source (to India) to control costs. “At large law firms, lawyers don’t know what their jobs are: make money or serve clients,” said Scott Gilbert, co-founder and chairman of Gilbert Oshinsky. Clients could force a new compensation structure on Big Law simply by refusing to hire firms that have billable hour quotas.
- Client-firm interactions. These associations need to become less transactional and more relational. “Clients should be willing to invest in firms beyond giving them business,” said David Wilkins, a professor at Harvard Law School. “Treat firms as true partners.” Carla Powers-Herron, group counsel at Shell Oil Co., added: “The law firm structure has killed creativity. It’s all about the book of business, not about how to best serve clients. There’s no focus on value.” Harvey Anderson, vice president and general counsel at Mozilla Corp., suggested that firm lawyers “participate in client business meetings, go to marketing planning sessions, learn about the business and act like an owner of the problem not just a provider of discrete legal advice.”
- Legal education. Legal education is too analytic, insufficiently collaborative, and emphasizes legal analysis at the expense of problem-solving and skill-building. Law schools should not become trade schools, but they would benefit from better engagement between faculty and practicing attorneys and by having more practicing attorneys in their teaching ranks. “We have people teaching who don’t practice. You would never find that in medical school,” said Michael Roster, former chairman of the Association of Corporate Counsel. The association’s Value Challenge is actively engaging inside and outside counsel in conversations regarding needed changes in the profession.
- Practicing law. The practice of law should be more narrowly and clearly defined so that it does not prohibit the provision of some basic services by non-lawyers. “We simply do not need lawyers to do some of the things that we need to have done,” said former Penn Law Dean Robert Mundheim, now of counsel at Shearman & Sterling. Added Emory Law School Professor George Shepherd: “My mom works as a tax preparer for H&R Block, and she’s not a CPA.”
- Ownership. Allowing outside investment in law firms would do more than provide additional capital; it would bring greater discipline of business reporting and analysis to the legal profession.
All of these analyses and suggestions were percolating much earlier in the year, as professors Hadfield and Burbank began assembling their program and invitation list. The arrival of an economic recession did not change the topics so much as it changed the odds in favor of some drastic changes, most attendees agreed. Absent economic turmoil it may have been unlikely that the courts, the Bar, corporate clients, law firms or elite law schools would have instigated major changes. The recession may now mean that none of those institutions will be able to resist change.
Paul Lippe, CEO of Legal OnRamp, an online collaboration system for in-house counsel and invited outside lawyers and third-party service providers, predicted 20 percent budget cuts for in-house legal departments and double-digit percentage reductions in the number of Big Law associates before the summer. “There are going to be 10,000 highly credentialed lawyers out there who won’t just sit home and clip coupons,” he said. “They are going to be working in new ways. All the conditions for innovation are there.”
McAfee, the Caltech economist, pointed to changes in the American boat-manufacturing industry as an example of unstoppable and often misunderstood market forces. When fiberglass became available for boat manufacturing in the 1950s, most boat owners said they would continue to prefer wooden boats. Of the major boat-makers at that time, only Chris Craft enthusiastically adopted the new material. And of the major boat-makers at that time, only Chris Craft remains a major firm. Why? Because wealthy clients who said they preferred wooden boats were a small fraction of new buyers brought into the market by the lower purchase prices and maintenance costs that came with innovation.
“The legal community will always be a bit more conservative than the business world,” said Penn Law’s Dean Michael A. Fitts. “Part of a lawyer’s role always will be protecting businesses and their owners against the down side. But even though the law and law schools are institutionally conservative, they can be intellectually innovative.”
At Penn Law, for example, economics and risk assessment courses are offered to first-year students, about one-half of the faculty has an advanced degree in a field other than the law, and students are encouraged to take up to four classes outside the law in business, communications, engineering, medicine, bioethics and other disciplines. Other law schools, most notably Stanford and Northwestern (whose dean, David Van Zandt, participated in the conference), also are undertaking significant curricular reform that challenges more conventional notions of how a legal education should be structured, Fitts said.
Still, there is much work to be done. Fitts told the story of a negotiation class at Penn that is taught by a Wharton professor and that enrolls students from both the business and law schools. “For most of the year,” he explained, “the students work through various projects in groups. But at the end there is a grand negotiation competition between the students from the two schools. Almost every time, the Wharton students make the proverbial million dollars – or go bankrupt. The law students almost never win the million dollars – but they never go bankrupt, either. And that reveals much about the traditional approaches of the two professions toward problem solving and the personalities of the type of people who are attracted to them.
“Identifying the downside is not the same as evaluating and protecting against risk or formulating alternative forms of positive action,” Fitts added. “Yet in the end, that is precisely what a good lawyer should do.”
Now, it would seem, more than ever.
