In this post, I tell an old Michael Lewis story that bears on the law. Remarkably, most of the insights come from a 15-year-old boy named Marcus Arnold, pictured above with Lewis circa 2001. I then review the U.K.’s journey to market liberalization, including the repeal of the British version of Model Rule 5.4.
Together these two vignettes tell a lot about the future of legal innovation, including where the principal bottlenecks lie.
Pyramids and Pancakes
In chapter 2 of his 2001 book, Next: The Future Just Happened, Michael Lewis tells the story of the AskMe Corporation and its accidental intrusion into the world of lawyers.
Founded in 1999 by former Microsoft employees, AskMe’s made “knowledge exchange” software that enabled very large corporations to tap into the collective expertise of their workforce. The prospect of greater efficiency and innovation attracted the attention of some mainstream giants, including 3M and Procter & Gamble. Thus, the knowledge exchange technology appeared to be on the brink of taking off.
Yet, as the people at AskMe soon realized, the deployment of their software revealed a lot about company culture. For example, in pyramid-style organizations, the bosses were only comfortable with senior managers serving as experts, with questions flowing up and answers flowing down. In contrast, in less hierarchical pancake-style companies, the bosses used the knowledge exchange to find valuable pockets of expertise wherever it might exist. The downside of this approach was the potential embarrassment when an intern or another low-level worker provided the best answer to a question posed by a senior vice-president. The upside, of course, was better answers.
Lewis writes, “The people who created the AskMe software believed that it gave companies whose bosses were willing to risk their own prestige and authority an advantage over hierarchical companies” (p. 88). This was not stated publicly because AskMe wanted to sell its software to as many customers as possible, including the pyramids. But once deployed and knowledge was able “to flow freely in every direction,” they were certain that the pancakes would chase out the pyramids.
Below is a depiction of the two organizational types. Obviously, it is a empirical question which structure provides the greatest competitive advantage, albeit some bosses will care more about retaining status rather than improving results.
Regardless of which type of organization they were selling to, however, the AskMe salespeople encountered the same objection — how do we know the software won’t break under the strain of 200,000-plus employees?
To prove that it wouldn’t, the company offered a public version of its software, which launched in February 2000. Within the first year, this new website, AskMe.com, attracted over 10 million visitors, all based on word-of-mouth endorsements. Prizes and free publicity attracted many people who ordinarily wouldn’t work for free. As Lewis observed, “Accountants, lawyers, and financial consultants mingled their licensed knowledge with experts in sports trivia, fortune telling, and body piercing” (p. 89).
AskMe.com’s virtue was its ability to find expertise in unexpected places. Yet, few could have imagined that out of 150 experts in AskMe.com’s criminal law division, including roughly 100 actual lawyers, the top-ranked expert would be a 15-year old boy.
His name was Marcus Arnold, and he resided in Perris, Calif., a far-flung exurban community halfway between Los Angeles and Palm Springs. Marcus’s family moved to Perris from South Central L.A. after Marcus’s older brother was murdered in his own backyard by an acquaintance. Marcus rarely discussed this part of his life, but by his parents’ account, it deeply affected him.
Although Marcus had no formal legal training, he was an avid watcher of court TV. To be taken seriously as a legal expert, Marcus concluded that his advice on AskMe.com needed to be written under a pseudonym, with Marcus eventually settling on “Justin Anthony Wyrick Jr.” because of its dignified air. Marcus’s AskMe.com profile stated he was 25 years old and “a law expert with two years of formal training in the law.” That was false. However, Marcus’ s profile truthfully stated, “I am not accredited by the State Bar Association yet to practice law” (p. 94).
Even with the benefit of a phony profile, Marcus’s ascent to top expert status was quite remarkable. AskMe.com’s rankings were based upon the number of responses, the speed of their delivery, and a 1-to-5-star quality rating given by prospective clients. With Marcus’s success in answering online legal questions, however, came inquiries for his phone number and fee schedule. Troubled that he may be deceiving his “clients,” Marcus decided to come clean, changing his profile from “legal expert” to “15 year old intern attorney expert” (p. 100).
Almost instantly, several of the real attorneys on the AskMe.com started laying into Marcus, scrutinizing his answers for flaws. Yet, after a couple weeks of online abuse, Marcus decided to pick himself up and directly compete with all comers. In this effort, Marcus was aided by prospective clients put off by the sour grapes of the licensed attorneys and the perception of many that, based on his prior performance, he must be some kind of a whiz kid. “Two weeks after he disclosed his age,” writes Lewis, “[Marcus] was on the rise; two weeks later he hit number 1″ (p. 104).
Is there a lesson here?
Over the years, I have shared the story of Marcus Arnold with many current and future lawyers, including my students at Indiana Law, where I’ve built an assignment around Marcus Arnold and whether the legal world is destined to be a pyramid or pancake.
Invariably, Marcus Arnold elicits a wide range of reactions that runs from laughter and delight on one side to confusion and consternation on the other.
Those in the confusion and consternation camp (a surprisingly large group) often conclude that the story has no point — that Marcus Arnold was peddling bad legal advice to gullible clients. “So what?” tends to be their bottom-line response. In contrast, those reacting with laughter and delight invariably latch onto the fact that attributes like clear communication, responsiveness, and a sincere desire to help are critical to landing a client. And on these nonlegal skills, a 15-year-old boy could outperform a large group of licensed lawyers.
As I discuss with my students, many of us enter the legal profession wanting to be judged by our ability to produce academically sound answers, a desire that is strongly reinforced by hiring criteria of the big law firms. But the closer we get to actual clients, the less workable that becomes.
Indeed, for most of us, until we accept that there is something important to our success as a lawyer that can currently be done much better by a large number of “nonlawyers,” including some 15-year-old kids, we are essentially unteachable and destined to hit a plateau. Further, a sure sign that we’ve on a sideways path is a growing fixation on the limited intelligence of our clients.
On to Rule 5.4
Last July, I submitted a report to the State Bar of California that, among other things, urged regulators to lift the historical prohibition on nonlawyer investment. See Post 058. The rationale was less the need for capital than the ability to create an economic environment where lawyers and allied professionals can work together as co-equals to develop new ways of provisioning legal services — ways that could dramatically improve quality and transparency of legal work while also lowering per-unit costs.
Based upon my email inbox, the report was met with enthusiasm by many professionals working as nonlawyers in law firms. In their minds, equity signals equality. And that equality can be used to push their firms in directions that will delight clients, particularly in the emerging world of legal products, and to create enterprise value significantly greater than what’s available through a short-term focus on profits per partner.
More recently, after reading my California report, bar officials from other states have pointed to the lack of dynamism in the U.K. as a reason to curb our enthusiasm. “The U.K. has been liberalized for several years now,” one bar president explained to me recently. “Why should we do anything until we see data showing clear benefits to consumers?”
The U.K. timeline
This is a question worth taking seriously. Thus, I constructed a timeline to better understand the origins and evolution of the new U.K. rule that, contrary to Rule 5.4, permits lawyers and nonlawyers to co-venture with each other as partners.
It started in July 2003 with a report from the U.K. Department for Constitutional Affairs (DCA), which concluded that the current regulatory framework for legal services was “outdated, inflexible, over-complex and insufficiently accountable and transparent.” See DCA, “Competition and Regulation in the Legal Services Market” at ¶ 65 (July 2003).
The DCA then commissioned Sir David Clementi (a chartered accountant and banker by training and experience) to conduct an in-depth analysis and propose solutions. The Clementi Report, which was released in December 2004, agreed with the DCA’s earlier conclusions and urged the creation of alternative business structures (ABS) and a new system of entity regulation. See “Review of the Regulatory Framework for Legal Services in England and Wales: Final Report,” Chapter F at 105 (Dec. 2004).
In October 2005, work commenced in the House of Lords and the House of Commons to consider Clementi’s recommendations. Two years later, Parliament passed the Legal Services Act 2007, which set forward a timeline for market liberalization. Under this new law, “reserved” legal services remained a category of work that could only be performed by lawyers. But with regulatory approval, lawyers were free to enter into partnerships with nonlawyers.
In January 2012, the Solicitors Regulation Authority (SRA) began accepting licensing applications for ABSs. Two months later, the first ABSs were approved. Through December 2018, the SRA received a total of 872 applications. Although some of these came from the Big Four and large U.K. firms looking for vehicles to house innovative new ventures, a more common use was a provision used by traditional law firms to grant an equity interest to their chief marketing officer, chief financial officer, or similar top-level professionals, presumably because they’d proven themselves indispensable.
Law’s first pancake
Yet, remarkably, it wasn’t until application 872 — 15 years after the UK began its market liberalization journey — that the SRA granted its first petition from an established major law firm to become 100% employee-owned – arguably, the legal profession’s first economically aligned pancake.
The firm is Hodge Jones & Allen, a successful 40-year-old London firm that was confronting the issue of succession. According to the firm’s managing partner, Vidisha Joshi, the firm asked the existential question, “Where do we want the firm to be in ten years’ time?” and concluded that a 100% employee-owned model was the best way to get there. In addition to higher levels of employee productivity, staff retention and engagement, the 100% employee-owned model “is also a tax-efficient model that ensures that profits can either be shared with employees or put back into the business.” See Joshi, “Why we became the first employee-owned major law firm,” The Times, Dec. 7, 2018.
A good number of lawyers would like to wait another 10 years to see proof that Hodge Jones & Allen has landed on the right model. If those lawyers are key decision makers in the U.S., we’ll have a very long wait on our hands.
Yet, reflecting upon the inability of some lawyers to comprehend the superior communication skills of Marcus Arnold, I’m prompted to ask an uncomfortable question: Are we lawyers reluctant to collaborate intensively with nonlegal professionals because deep down we fear an unflattering comparison of our professional abilities? If so, ego and attitude may be a bigger barrier to innovation than Rule 5.4.
Ironically, in a tech-enabled world, our best move is to look inward and to confront our fear. When that happens, everyone can win.
This essay is based on a keynote presentation I gave at the 2019 LMA Annual Conference, an organization that has its full share of talented and insightful nonlawyer professionals. Many thanks to Anusia Gillespie and Erin Corbin Meszaros for letting me gently poke the bear.
Because of the Cal Bar’s Legal Market Landscape Report and the subsequent creation of the Task Force on Access Through Innovation of Legal Services (ATILS), which is now recommending significant regulatory changes, see Debra Cassens Weiss, “Nonlawyers could offer legal advice and partly own law firms under these California proposals,” ABA Journal, July 15, 2019, I am permanently associated with the movement to liberalize Model Rule 5.4.
As noted at the beginning of the Task Force’s official memoranda, it sought to “balance[ ] the dual goals of public protection and increased access to justice.” See Open Session Agenda Item 701 July 2019, Memo from Justice Lee Edmon and Randall Difuntorum to Members, Board of Trustees, at 2 (July 11, 2019). In 251 pages of memoranda and exhibits, the phrase “access to justice” appears 92 times compared to 29 times for “public protection.” This likely reflects how lack of access weighs on the minds of the Trustees and the ATILS Task Force. Indeed, in my own view, declining access is a cancer that’s slowly killing the public’s faith in representative government. Cf. Gillian K. Hadfield, Rules for a Flat World 79 (2017) (“People who feel as though the rules don’t care about them don’t care about the rules”).
That said, as author of the Landscape Report, I feel compelled to engage in some expectation management. Specifically, let’s compare the scope of the proposed changes to the ethics rules (primarily 5.4) with the magnitude of the underlying problem. The change is modest — basically, enabling lawyers and allied professionals to co-venture with each other on relatively equal terms. Yet, the underlying problem is massive — most people can’t afford lawyers to address their legal needs.
It is all-too-easy to conflate the enormous political will and energy needed to change Rule 5.4 with a big win for access to justice. But for most Californians, it won’t play out that way, at least in the short to medium term. Rule 5.4 needs to be liberalized because, like healthcare and higher education, the cost of legal services is increasing much faster than other goods and services in our economy — and for a multitude of reasons, this is harmful to the public interest. In a complex, interconnected, and highly regulated society, we need more legal solutions per unit of effort, just like we need more affordable healthcare and higher education options that do not require massive amounts of student debt.
Sticking with the legal field, however, which is an area we know well, how are we going to get legal innovation at a rapid pace when lawyers — who lack expertise in tech, process, data, design, and operations management — need to be 100% in charge and bear all the financial risk? The answer is both obvious and undeniable: we won’t.
All this is true. But this does not mean that modifying Rule 5.4 is the fastest or best way to improve access to justice. Instead, the most direct way to achieve this objective is for state supreme courts to redesign how the most common types of legal disputes get resolved. See Post 099 (discussing the experience of British Columbia’s Civil Resolution Tribunal); see also Henderson, Legal Market Landscape Report (July 2018) at 19-21 (noting that courts are a significant part of the legal system’s cost problem “because the judiciary establishes the procedures lawyers must follow to resolve disputes”).
Redesigning how state courts resolve disputes is a crucial new frontier that has very little to do with modifying Rule 5.4. Yet, we can and should embrace both.
Finally, I am sorry that these changes may work against the economic interest of lawyers who are already struggling to earn a living. See Post 037 (discussing challenging economics of lawyers in small and solo practice). As a profession, however, we are ethically required to evolve in the public interest. See ABA Preamble to the Model Rules at ¶ 6 (requiring lawyers “to be mindful of deficiencies in the administration of justice” and to “help the bar regulate itself in the public interest”). This affects the functioning of our system of government, which is quite a fragile thing in the year 2019.