By: Chris Neill
The legal profession is not what it once was. The industry is facing a “justice gap,” accordingto Michigan State Professor Renee Newman Knake. She observes that the “overwhelming majority of this country goes without much-needed legal help because they simply cannot afford to pay a lawyer three-figures-per-hour for multiple hours, but they also do not qualify for the limited legal aid programs available.” Meanwhile, many lawyers face unemployment, and even more continue to graduate from the nation’s law schools. That the industry has failed to “develop sustainable models for delivering legal services that are affordable [and] accessible,” and struggled to bring together qualified attorneys looking for work and clients who need their services represents an enormous inefficiency. The negative impact on the field is tangible, with international firms like Howrey LLP and Dewey & LeBoeuf LLP filing bankruptcy. Big firms that remain have lost significant ground to more cost-efficient midsize firms. The Wall Street Journal reports that firms with more than 750 attorneys have seen their share of legal billing fall relative to firms with 201-500 attorneys over the past three years.
Several cyclical factors contribute to these down trends. As corporate clients faced tougher times during the recession, they became more critical of the bills from their hired counsel. Partners at the most prestigious firms could charge anywhere from $500 to upwards of $1000 dollars per hour for their time, and companies squeezed for revenue sought more cost-effective alternatives. Likewise, companies hurting from the recession were less likely to engage in activities such as mergers and acquisitions or public stock offerings that were traditionally very lucrative for major law firms.
Some threatening trends in the industry are more secular than cyclical, however. The Economist notes that technology, for example, has replaced a lot of work typically assigned to low-level associates. This so-called “e-discovery” technology is capable of organizing and accessing the large volume of documents necessary in large cases. Many big law firms are reconsidering their traditional business models in light of technological advancements which better handle routine tasks that used to be assigned to associates who could still charge handsomely for their time.
Despite these external threats to the legal profession, the biggest challenge to the industry is internal, says Jay Edelson, founder and managing partner of Edelson LLC. He argues the industry “has demonstrated an inability to embrace (or even talk honestly about the need for) radical changes,” and draws a parallel to the newspaper industry. When faced with the rapid innovation of new media, Edelson says that newspaper executives “couldn’t come to terms with their changing industry” and “offered no realistic solutions.” Likewise, he sees many traditional firms engaging in short-term remedies such as hasty mergers with other firms, associate lay-offs, and hiring fewer graduates rather than acknowledging and embracing real reform.
Especially problematic is the structural and systemic nature of the barriers to such reform. Strict rules govern the profession, particularly the organization of law firms. Non-lawyers, for example, are not allowed to hold any ownership stake in a firm that offers legal services to the public. This is why most law firms are organized as partnerships rather than corporations. The American Bar Association (ABA) stands firmly behind this rule as a way to preserve core values of the practice of law. The University of Southern California Gould School of Law Professor Gillian Hadfield explains that the ABA believes “independent legal judgment, protection of client confidences, undivided loyalty, and avoidance of conflicts of interest” would all be threatened by “allowing corporations other than those owned and managed exclusively by lawyers to practice law.”
Such regulation stems from the recognition of law as a “noble profession,” and as a “higher calling than mere bourgeois commercialism.” While Hadfield properly acknowledges that there are in fact duties lawyers fulfill that merit this distinction, such as securing and protecting rights, the regulations are a significant barrier to innovation in the industry. She claims that “professional regulation of legal markets dampens, even extinguishes, the market creativity that drives the modern economy forward.”
Some aspects of law, particularly much of the work performed by transactional or tax attorneys, serve as major contributions to business and economic activity. However, a corporation that wanted to employ lawyers alongside accountants, investment bankers and management consultants to provide integrated business services to corporate clients at lower prices would be unable to do so because of regulatory boundaries between the practice of “law” and “non-law.” While these distinctions are rooted in good intentions, they emphasize the delivery of legal services and turn a blind eye to the role those services can play as a means to clients’ ends. Business school students are taught that a hardware store doesn’t just sell a customer a drill, it sells him a hole in the wall; the best professionals, then, focus not simply on the product they offer but how that product will help customers accomplish their goals. Hadfield argues that current regulation in the legal industry focuses on “building better drills and not figuring out how to produce better holes at a lower cost.”
The organization of law firms as partnerships also limits the ways in which they can finance their operations. They cannot issue equity to the public and are therefore excluded from many of the traditional ways capital is allocated, such as venture capital funds and angel investors. As an indirect side effect, there is a notable lack of beneficial features in the legal profession that exist in industries open to public financing. There are no analysts to develop expertise and study trends in the legal industry. Business schools have no reason to teach law firm management. These practices drive progress in other industries and their absence in the field of law is likely to reinforce the status quo within the legal industry, keeping innovative companies like LegalZoom (a site that prepares legal documents at a much lower cost than a traditional attorney consultation) on the periphery of the field.
The ABA’s interest in protecting the integrity of the profession is certainly valid. It is especially beneficial when attorneys counsel and represent individual citizens in their legal matters, a crucial service within our present government and legal system. In this regard, the practice of law is a noble profession, but it is also a marketplace like any other industry. The ABA and the profession as a whole should consider how to still uphold the core values of their practice while scaling back some of the regulation which stifles innovation. This innovation could lead to more access to better legal services at lower costs, and help to bridge the “justice gap” Professor Knake sees in the industry today.
