The State Bar of California recently commissioned me to write a landscape report on the changing legal market. That report is now posted on the State Bar website. On Friday, I gave a presentation based on the report to the Board of Trustees (webcast here).
The State Bar of California recently underwent a reorganization that separated the regulatory and trade association functions. The State Bar retains regulatory authority while the California Lawyers Association (CLA) is the new voluntary bar that manages CLE and educational activities. The State Bar Act of 2017, which mandated these changes, also required transition to a Board comprised entirely of Trustees appointed by the State Bar’s oversight bodies – the California Supreme Court, the Legislature and the Governor. The Trustees were formerly elected by the membership. The reconstituted board will consist of seven attorneys and six non-attorneys to be appointed for four year terms. Amidst these changes, the Trustees’ approved a strategic plan that required a comprehensive study of the market they are charged with regulating. My report is part of this effort.
As a lifelong Midwesterner, I am used to California setting the trends for the rest of the country. I make no predictions in this case. However, I am humbled by the opportunity to contribute to the State Bar’s fact-gathering process.
Below is the report’s executive summary.
Throughout the United States, legal regulators face a challenging environment in which the cost of traditional legal services is going up, access to legal services is going down, the growth rate of law firms is flat, and lawyers serving ordinary people are struggling to earn a living. The primary mechanism for regulating this market is lawyer ethics, including the historical prohibition on nonlawyer ownership of businesses engaged in the practice of law. However, private investors are increasingly pushing the boundaries of these rules by funding new technologies and service delivery models designed to solve many of the legal market’s most vexing problems.
There is ample evidence that the legal profession is divided into two segments, one serving individuals (PeopleLaw) and the other serving corporations (Organizational Clients). These two segments have very different economic drivers and are evolving in very different ways. Since the mid-1970s, the PeopleLaw sector has entered a period of decline characterized by fewer paying clients and shrinking lawyer income. Recent government statistics reveal that the PeopleLaw sector shrank by nearly $7 billion (10.2%) between 2007 and 2012. Throughout this period, the number of self-represented parties in state court continued to climb. The Organizational Client sector is also experiencing economic stress. Its primary challenge is the growing complexity of a highly regulated and interconnected economy. Since the 1990s, corporate clients have coped with this challenge by growing legal departments and insourcing legal work. More recently, cost pressure on corporate clients has given rise to alternative legal service providers (ALSPs) funded by sophisticated private investors. Both responses come at the expense of traditional law firms.
What ties these two sectors together is the problem of lagging legal productivity. As society become wealthier through better and cheaper good and services, human-intensive fields such as law, medical care, and higher education become relatively more expensive. In contrast to medical care and higher education, however, a growing proportion of U.S. consumers are choosing to forgo legal services rather than pay a higher price.
The legal profession is at an inflection point. Solving the problem of lagging legal productivity requires lawyers to work closely with professionals from other disciplines. Unfortunately, the ethics rules hinder this type of collaboration. To the extent these rules promote consumer protection, they do so only for the minority of citizens who can afford legal services. Modifying the ethics rules to facilitate greater collaboration across law and other disciplines will (1) drive down costs; (2) improve access; (3) increase predictability and transparency of legal services; (4) aid the growth of new businesses; and (5) elevate the reputation of the legal profession. Some U.S. jurisdiction needs to go first. Based on historical precedent, the most likely jurisdiction is California.