Photo of Bill Henderson


Microsoft’s legal department has the talent, resources and vision.  With enough time, a “Microsoft system” could evolve that will be as influential as the original Cravath system.


I was very fortunate to be invited to the most recent Microsoft Trusted Advisor Forum, which took place on September 20 at Microsoft’s Redmond campus. The Forum featured 13 key Microsoft legal service providers (12 law firms + one of the Big Four) giving presentations on an innovation that “demonstrably improves legal service delivery to Microsoft.” Although ambitious and unprecedented, the Trusted Advisor Forum on Innovation is but one small moving part in a much larger and well-resourced strategy.

This strategy was announced last summer in a widely read essay by David Howard, CVP & Deputy GC at Microsoft. See “Microsoft’s New Strategic Partner Program,” LinkedIn, July 27, 2017. What caught people’s attention was Microsoft’s commitment “to move 90% of our work to AFAs within two years.”  The mechanism for achieving this goal is the Strategic Partner Program, which asked 13 law firms to co-create solutions within the context of long-term business relationships. This collaboration theme was recently re-enforced at Microsoft’s Global Summit when General Counsel Dev Stahlkopf asked all of Microsoft’s outside counsel to “[p]artner with us to continuously improve and innovate.” Zach Abramowitz, “Why Microsoft is Hosting Their Law Firms in Redmond This Week and Why it Matters for Everyone Else?,” BigLaw Business, Sept. 18, 2018.

These are big ideas. Someone, however, has to execute.

This task has been given to Jason Barnwell, Microsoft’s Assistant GC for Legal Business, Operations and Strategy.  To give the Strategic Partner Program continuity and weight, Barnwell and his team started running the Trusted Advisor Forums. Last fall the topic was Artificial Intelligence. This spring it was Competition and Data. Later this year will be Diversity & Inclusion. Sept. 20 focused on Innovation.

Both Jae Um and I were at the Sept 20th event. We felt it was sufficiently important for the broader legal industry that it warranted two detailed write-ups. Mine (068) applies the lens of diffusion theory to the SPP/Trusted Advisor Forum innovation, examining the obstacles to adoption and the likelihood that MIcrosoft, through its leadership and systems-level approach, will eventually be successful. (For a primer on diffusion theory, see Posts 004, 007, 008.) Jae’s post (069) goes deeper into the substance of the Innovation Forum.  Both 068 and 069, however, discuss how and why MIcrosoft’s efforts matter for the broader legal industry.

Will it work?

To handicap the odds of Microsoft’s Strategic Partner Program (SPP) becoming a major success that influences other Fortune 100 legal departments and eventually the broader legal industry, it is worth focusing on three factors:

  1. The quality of leadership driving and supporting the SPP
  2. The “adoption” of the SPP by law firms
  3. The duration of the adoption period (measured in years)

Factor #1 strongly favors Microsoft’s: Jason Barnwell is a 1 in 10,000 talent. No less remarkable, however, is that Barnwell has the full backing of senior leadership (Brad Smith, President & CLO; Dev Stahlkopf, CVP & GC; David Howard, CVP & Deputy GC) along with numerous Microsoft practice group leaders at the Deputy GC-level who told Barnwell, “I’m in.” Barnwell also has the bench strength of 13 legal professionals, including Rebecca Benavides (Dir. of Legal Business) and Tom Orrison (Dir. of Legal Ops). See Post 017 (innovation in organizations crucially depends upon the attitudes of leadership and the presence of “champions”).

Factor #2 cuts strongly in the opposite direction: The SPP is an innovation that Microsoft wants its key outside service providers to adopt (i.e., embrace, improve, own).  Yet, using Rogers rate of adoption model (Post 008), the still-evolving SPP faces enormous challenges to adoption, particularly with regard to relative advantage and cultural compatibility (see full analysis below).  It is all-too-easy to misunderstand or underestimate these challenges, particularly within the elite segment of the bar where Microsoft needs to operate.

Which brings me to the #3 factor: If Barnwell and his team can forge ahead for six to eight years, I would put the odds of success at 90%+.  This is because the SPP/Trusted Advisor Forums reflect a multiple iteration/repeat player design that can reshape cultural norms and re-orient relative advantage toward the long-term. With some luck, the “Microsoft system” can do for legal departments what the Cravath system did for law firms 100 years earlier. This would be a much needed refresh for everyone.

In this post, I’ll delve deeper into the three factors listed above.  But first, let’s review the set-up of the Microsoft’s Trusted Advisor program, as it provides specific context for understanding Microsoft’s core innovation, which is the SPP.

September 20th Trusted Advisor Forum

Trusted Advisor organizations were invited to make presentations on two topics:

  1. tell us about one thing you have done in the last year to get better; and
  2. tell us about one thing you will try to do next year to get better.

Presenters were instructed to focus on an innovation that demonstrably improves legal service delivery to Microsoft.”  Because Barnwell knows his audience, these instructions were parsed in a detailed explainer sent out in advance. Organizations with past and future presentations (7 of 13) had 20 minutes to present, including a short Q&A. Organizations with only a future presentation (6 of 13) were allotted 15 minutes.

Sure, everyone is bound to be nervous presenting on innovation in front of Microsoft and their industry peers. But other aspects of the Forum further raise the stakes. Specifically, Trusted Advisor organizations were strongly encouraged to invite other in-house professionals. Thus, in the room were (to name but a few) Adobe, Amazon, American Airlines, Fedex, Glaxo-Smith-Kline, Intel, Liberty Mutual, Starbucks, T-Mobile, etc). According to Barnwell, Microsoft opened this particular Forum to other law firm clients because “we don’t want to be the only client asking you for this type of commitment.”

The Trusted Advisor Forum on Innovation was designed in collaboration with Casey Flaherty.  During his opening remarks, Barnwell cited Flaherty’s 2016 ACC monograph  “Unless You Ask,” as his primary blueprint.  Flaherty was retained by Microsoft to help organize and run the Forum.

Regarding follow-up, which clearly bears Casey’s fingerprints, the last section of the explainer lays out the tentative plan:

The [Innovation] Forum is an experiment. The current thinking is we will reconvene in a year to report back and publicly commit to a new round of innovations. But we will see how this goes.

Our commitment to continuous improvement is not an experiment [emphasis added]. These types of projects will become part of our annual feedback cycle and will be on the agenda for my site visits. In addition, I recommend you start, if you haven’t already, situating these projects in a larger strategic plan with a target operating model and a digital transformation roadmap. You do not have to share your entire vision at the Forum. I will ask about it when I come onsite.

Suffice it to say, Microsoft is trying something new.


1. Quality of leadership driving and supporting the Microsoft initiative

The September 20th Trusted Advisors Forum took place in Building 92 on Microsoft’s Redmond Campus.  Although not labelled as such, Building 92 appeared to be a conference center. Our room was on the second floor, roughly 100′ by 200′, with 30′ ceilings and two all-glass walls (front and side) overlooking a wooded landscape.  The set-up was 15 round tables with plenty of room to spread out.  I have been in a lot of law firms, but very few have a room that could hold 200 people so comfortably. Remarkably, Building 92 had a lot of other activity that day and could have easily handled three of four similar events. We were but one corner of one floor.  This is how things roll at an $85 billion global software giant that employs 115,000 people.

I share this information to make a simple point:  The person running an outside counsel initiative at Microsoft is bound to enjoy a lot of power and influence. But that does not make the person an exceptional leader.  Jason Barnwell, however, combines the two attributes.

In his opening remarks, Barnwell explains that today participants are Microsoft’s “long-term partners” and that Microsoft intends to “invest in the relationship.”  Barnwell reminds the audience, “We serve the same client, but all of us have to be committed to doing better.  In this program, success is learning; failure is not trying.”  Barnwell continues, “Those of us in CELA [Corporate External and Legal Affairs] are updating our culture to embrace a growth mindset that stresses a learn-it-all instead of a know-it-all approach. We expect to see this reflected by our Trusted Advisors.”  Finally, Barnwell emphasizes his goal of creating a “psychologically safe place” for Forum members to share and collaborate.

How many lawyers do you know in positions of senior leadership who use the term “psychological safety” to describe the environment they aspire to create?

The term psychological safety has made one other appearance on Legal Evolution, in the context of effective change strategies. See Post 057 (citing research from Google showing that psychological safety is the key attribute of high-performing teams). Professor Amy Edmundson at Harvard Business School defines the term as a “shared belief held by members of a team that the team is safe for interpersonal risk-taking. … [and] a sense of confidence that the team will not embarrass, reject or punish someone for speaking up.”  Edmundson, “Psychological Safety and Learning Behavior in Work Teams”, 44 Admin. Sci. Quarterly 350-383 (Dec. 1999).

Barnwell’s background sheds some light on his unconventional style.  Barnwell is originally from South Carolina before heading to MIT to obtain a degree in Mechanical Engineering.  During his last semester and the summer after graduation, Barnwell worked as a Developer/Technology Specialist for the Harvard School of Design.  In 2000, Barnwell headed to California, where he worked as a software engineer for four years. In the fall of 2007, he enrolled at USC Law.

The key point point here is that long before he entered the legal field, Barnwell was thoroughly socialized into a systems method of thinking.  In a sidebar conversation, Barnwell told me that he knew within the first 30 days of his associate position at Heller Ehrman that the firm was awash in work that could easily be automated.  At his next firm, Barnwell observed a strong focus on profits with little attention paid to how the work was performed.

Thereafter, Barnwell concluded that law firms would not be a good long-term fit.  Thus, he resolved to spend another year in private practice to learn how to be an MVL — “minimum viable lawyer.” In the fall of 2010, Barnwell joined Microsoft. Since then, he has been promoted from attorney, to senior attorney in a variety of roles, to assistant general counsel. See Barnwell’s LinkedIn page.

Among in-house peers, Barnwell fits the classic innovator profile–i.e., intellectually venturesome with an interest in new ideas that lead the innovator out of conventional peer networks into more far-flung social and professional circles. See Post 007 (defining adopter types from Everett Rogers, Diffusion of Innovations). Within lawyer circles, Barnwell describes himself as “a nerd” and an “odd duck.”  I was recently added to an external email list where Jason passes along new sources of learning relevant to the workplace.  Here is a sampling from that list:

  • Link to an HBR podcast from the Chief Strategy Officer of Alibaba with Jason noting the growing role of creativity in knowledge work.
  • Link to an article titled “How to Solicit Negative Feedback When Your Manager Doesn’t Want to Give It” with commentary on how these ideas are being used at Microsoft.
  • summary of research documenting the lag time between changes in business school orthodoxy and changes in corporate strategy (roughly three decades) and analogizing this process to the legal profession.

If Jason Barnwell was still working in a law firm, these intellectual pursuits would be a distraction from ambitious billable and origination targets. Perhaps that’s a clue to the root cause of law firms’ innovation woes. Regardless, Barnwell is continuously adding to his toolbox so he can drive better results in his own area of influence.

In Diffusion of Innovations, Everett Rogers describes how the creative insights of the innovator often flow from their status as a “stranger,” a concept originally developed by the German sociologist Georg Simmel. See “The Stranger” (1908). Rogers notes that a stranger “has a unique view of the system in which he or she is a member” and “can more easily deviate from the norms of the system by being the first to adopt new ideas.” Diffusion of Innovations at 42-43.

Among elite lawyers, Barnwell is a stranger: he is a scientist and software engineer who can’t be co-opted into believing that law is special or different. Yet, he has remarkable EQ and political instincts on when to push forward and when to back off. This is what makes Barnwell a 1 in 10,000 talent.  Now he’s in a position of significant influence and authority at Microsoft.

Jason Barnwell at the whiteboard (all day) during Sept. 20 Trusted Advisor Forum. This is what innovators do.

2. “Adoption” of the SPP by law firms

Even with Barnwell’s unique talent, perspective and credibility backed by the clout of Microsoft, the ambitious goals of the Strategic Partner Program — 90% AFAs by 2020; continuous improvement from all partner firms — are far from guaranteed. This is because of the difficulty of the underlying problem, which is a legal culture that resists learning.  To be clear, this is my assessment, not Barnwell’s or Microsoft’s. More on the legal culture problem in Section 3 below.  First, let’s look at the innovation that Barnwell is trying to get law firms to adopt and how it fares in Rogers rate of adoption model.

a) An innovation designed to spawn other innovations

Drawing upon the ideas of Casey Flaherty, Barnwell is building the SPP to include a “structured dialogue” process that emphasizes continuous improvement for the benefit of Microsoft.  The theory is very simple.  Smart people from the buy and sell side come together on an annual or bi-annual basis to discuss what is working well and what could be improved. Based on that conversation, goals are set with very simple metrics for ascertaining progress.  If the structured dialogue is faithfully followed, the participants are put onto the path of high-value innovations. This is the Flaherty-Barnwell thesis, which I strongly endorse.

Since Barnwell is at the beginning of this process, the Sept. 20th past and future innovation presentations are grist for structured dialogue. Further, all the Trusted Advisor organizations got to see each others’ presentations. Lawyers are highly competitive.  Thus, independent of any dialogue between the Trusted Advisors and Barnwell and his team, participating organizations are going to up their game. Of course, that is the key to all of this — multiple iterations that build on one another.

Regarding the quality of ideas and evidence of demonstrable improvement, critiques of specific firms would be completely counter to Barnwell’s laudable and wholly correct mandate of psychological safety.  Suffice it to say, presentations in this first Iteration fit onto a bell curve with only two to three in the A range.  Here are my takeaways.

  • Innovation is not a synonym for tech: Quantums leaps are possible with a well-designed process and high-quality training of paraprofessionals.
  • Outstanding P3 (pricing, process improvement, project management) and KM professionals can add immense clarity and value to workstreams.  These folks are “sell-side” legal ops professionals. No JD required.  Just get out of their way.
  • Mine your data — we are all impressed by an international firm that studied its own cross-border M&A transactions to identify patterns that are sure to be valued to clients.
  • The innovation presented by the Big Four participant was very sophisticated and advanced, giving the impression that it was just popping the hood on its ongoing strategy. The Big Four does not have a legal culture problem.

Expect next year’s presentations to have a lot more A’s.

b) Likelihood of adoption

Let’s assume that to be successful in Microsoft’s goal of continuous improvement, Barnwell needs Trusted Advisor organizations and some key Microsoft in-house lawyers to “adopt” his iterative structured dialogue process. Rogers rate of adoption model from Post 008 provides the key criteria, with “Perceived Attributes of Innovation” accounting for most the variance.

Applying these criteria to the innovation, the first two are strong negatives; the second three are all strong positives.

Relative Advantage (-). The larger the relative advantage, the faster the rate of adoption.  In this case, if Microsoft is your client and asks you participate in a Trusted Advisor Forum, you are very likely to accept.  However, what’s the value? In the short- to medium-term, it’s preserving the relationship with Microsoft; I doubt any relationship partner sold participation to firm management by promising a significant volume of additional work.  Part of the legal culture problem is an inability to see the long-term, which includes Microsoft as an institutional client of the firm that reduces dependence on partners with portable clients. The relative advantage is negative to neutral in the early stages but positive for those focused on the long run.

Compatibility (-).  The more compatible an innovation is with the social system’s existing cultural norms, the faster the rate of adoption. Granted, this sounds ludicrous, but a large number of lawyers are extraordinarily resistant to candid conversations about performance. They are (1) afraid of the emotional blowback of giving it; and (2) terrified at the prospect of receiving feedback that is not in the “A” range. The pervasiveness of this problem within elite professional services was the impetus for Professor Chris Agryis’s article, “Teaching Smart People How to Learn,” Harv. Bus. Rev. (May-June 1991), which is now an HBR classic. Agryis discusses the “brittle” personalities of elite professionals who have never experienced failure. The result is an intellectual defensiveness and a propensity to blame others. Of course, none of this unpleasantness is necessary if the hard conversations can be avoided in the first place. Compatibility is a strong negative that Barnwell is countering with a precommitment strategy. It also explains Barnwell’s emphasis on psychological safety.

Complexity (+). The simpler and less technical an innovation, the faster the rate of adoption.  A structured dialogue process is drop-dead simple even if there is emotional resistance to participation. {Lack of] Complexity is a strong positive here.

Trialability (+). Innovations that can be tested through trials are more likely to be adopted. As noted in the explainer, the Innovation Forum is “an experiment” and that Barnwell wants to “see how it goes.”  Iterative approach =  trialability. It’s also a “little bets” approach. See Peter Sims, Little Bets: How Breakthrough Ideas Emerge from Small Discoveries (2011).  Another strong positive.

Observability (+).  The more observable an innovation by other members of social system, the more likely adoption. For example, taller and better corn in Rogers’ original research made the benefits of hybrid seeds highly observable to other farmers. See Post 008. Likewise, the Forum format dramatically increases observability (and also reshapes culture, albeit slowly) — all positive.


3. The duration of the adoption period (measured in years)

The combination of low relative advantage and low compatibility is what I refer to as the legal culture problem. And it affects all firms in the AmLaw 200 on a continuum that ranges from “challenging” to “extremely severe.” But for the SPP’s multiple iteration/repeat player design that will, hopefully, extend for a period for years, I would be writing off this whole initiative. The legal culture problem runs that deep.

For the purposes of this last section, I’m going to refer to the multiple iteration/repeat player design as the “Microsoft system.” This is useful for two reasons. First, if Barnwell and his team are permitted to stay the course, the SPP/Trusted Advisor Forums will evolve into a system.  Second, the emphasis on “systems” is appropriate because virtually all elite U.S. lawyers now operate in the late stages of the Cravath system, though few appreciate what that means.

The Cravath system was developed in response to an acute shortage of sophisticated business lawyers during the rapid growth of financial and industrial enterprises in the early 20th century. See Henderson, “Three Generations of U.S. Lawyers: Generalists, Specialists, Project Managers,” 70 Maryland L. Rev. 373 (2011). The core of the system was a partner-associate training model that aligned incentives so that young lawyers got excellent training, clients got excellent service, and partners enjoyed security, profits, and prestige. Further, it was scalable, meaning that it could keep pace with the relentless increase in client demand without compromising quality. Indeed, the purpose of the system was to build “a better lawyer faster.” All of the system’s key moving parts are laid out in remarkable detail in the first 12 pages of the second volume of the Cravath Swaine & Moore firm history. See Robert T. Swaine, The Cravath Firm and Its Predecessors, 1819-1948 Vol. II (1948).

The results of the Cravath system were so powerful that its principles were adopted by every major U.S. law firm.  Yet, how may BigLaw partners today know what those principles are? The legal culture problem is, in essence, the problem of ahistorical partners. Each successive group of lawyers has paid less and less heed to the system’s operating principles until little more then an emphasis on elite credentials remains.  Yet, because of the system’s tremendous forward momentum, decades later partners are still collecting its late-stage financial rewards.  This is very powerful operant conditioning, re-enforcing some very misguided ideas about how value is created.

Because so many in-house lawyers also came of age at late-stage Cravath system firms, they too fail to appreciate the value of systems-level thinking.  Casey Flaherty’s “Lawyer Theory of Value” describes the absurd result — just clear the room and let a few well-credentialed lawyers do what they think is best.  See Post 040 (laughing and crying with Casey). Thus, as an industry, we are at a place where lawyers–both in-house and in law firms–have to rediscover the power of systems thinking so we can, once again, as we first did over 100 years ago, coordinate our behavior in service of what the client truly needs. If we do it right, as a second-order effect, lawyers who follow the resulting system will enjoy another several decades of financial prosperity.

The Microsoft system has the potential to make this happen because the multiple iteration/repeat player design can slowly change the culture and reorient incentives and payoffs (i.e., relative advantage) toward the long-term. If it’s not long-term, then it’s not a system. Further, Microsoft’s odds of success are made higher because (a) David Howard, the original architect of the SPP and a person who controls a huge external legal budget, saw the wisdom of promising a stream of high-value work to partner firms who operated in good faith; and (b) Barnwell and his team are fostering a “psychological safe” environment — to break down resistance, the many lawyers involved need assurances they won’t lose what they have, which is primarily a sense professional accomplishment and status.

Microsoft’s biggest execution risk is an underestimation by senior leadership regarding the nature of the resistance they will eventually encounter.  The SPP/Trusted Advisor Forums, and the Microsoft system it will create, is at best a “slow” innovation.  See Post 011 (slow versus fast innovations).  In the short- to medium-term, the only reward for participating (and investing time and firm resources) is to keep the Microsoft work you already have. This puts relationship partners in a vulnerable position vis-a-vis the short-term financial goals of their own firms.

Think I am being too cynical?  It is noteworthy that Microsoft asked 13 Strategic Partners to participate in the Forum on Innovation.  Nine accepted, four declined. Thus, Barnwell and his team filled the four open spots with service providers who “saw value” in the exercise.  That is how CMS, Eversheds, Reed Smith, and EY got into the mix. And this is just the beginning. Eventually, as real change begins, there will be whisper campaigns of naysayers (both line lawyers at Microsoft and partners at law firms) who are going to complain that the SPP’s implementation is “impractical” and should not apply to their workstream. This is what “non-adoption” of the SPP looks like.

Here is my message (of encouragement) to Microsoft’s leadership: When things get hard, don’t mistake the hardships for a flaw in the underlying strategy. This is what the naysayers want you to believe. They lack your long-term perspective; they would be most comfortable being left alone. Success requires that you face them down rather than grant their exceptions. Cf. Post 047 (discussing failure of major in-house change effort at Fortune 100 company because leadership lacked resolve).  As Jae Um has correctly pointed out many, many times, see, e.g., Posts 051, 052, 062, 063, 066, and with due credit to her former boss, Josh Kubicki, innovation in the legal vertical is just lots of hard work over a very long period of time. Your multiple iteration/repeat player design is the right way to conquer this problem; but it won’t make it easy or comfortable. Thus, stay the course until the end. Pay the price. The resulting Microsoft system will be worth it.

What’s next? See Huge, If True: How Microsoft’s Big Ideas Could Transform Legal Buy (069)


Big corporations are growing faster than the rest of the economy. It is not hard to figure out where this is going. Lawyer acceptance is different story.


Many lawyers and law firms claim to serve the middle market, often describing how they deal directly with owners and executives rather than in-house counsel. Although these clients aren’t the Fortune 500, the lawyers and law firm leaders take enormous pride in this type of practice and discuss it in ways that suggest it’s a stable and permanent market niche. I’m not sure that’s right.

Above is a treemap chart of U.S. businesses grouped by annual revenue. The key takeaway is that $100M+ companies comprise the vast majority of U.S. business activity (71.6%). Remarkably, all this purple is generated by 22,400 businesses, a mere 0.4% of the 5.7 million businesses in operation in the U.S. in 2012 (the most recent year that contains total receipts).

Companies in purple tend to have legal departments as do a meaningful number of companies in orange (>$25M-$100M). We can deduce this from a number of sources.  For example, according to the Legal Executive Institute, companies with less than $1 billion in revenue were classified as “small.” See 2018 State of Corporate Law Departments at 10.  Yet, these companies had, on average, nine in-house lawyers, or one attorney per $65M in revenue. Likewise, a 2016 report by Barker Gilmore, a national recruiting firm, classified companies into four groups: >$10B, $1B-10B, $100M-$1B, <$100M. Yet, even in the smallest category (<$100M), there were sufficient data to calculate separate salary, bonus and equity averages for three different in-house roles: general counsel, managing counsel, and senior counsel. See 2016 In-House Counsel Compensation Report at 14-22.

Defining “middle market” turns out to be surprisingly difficult — is it somewhere in the purple? The orange? The gold?  The managing partner of a successful firm near the bottom of the AmLaw 200 recently told me that all his partners agreed that the firm served the middle market. Yet, that consensus broke down during a strategic planning process when partners were asked to define middle market using specific criteria. Finally they gave up. The firm was still middle market, but each partner was free to follow his or her own definition.

Although consensus on the middle market is bound to elude us, not everything is so ambiguous. This Post addresses two interrelated topics regarding the future of law:

  1. The Journey to Big.  Large corporations are the fastest growing segment of the U.S. economy. This trend started several decades ago and will continue into the future.
  2. How Big affects the practice of law. Once one sees and accepts the journey to Big, several consequences for the practice of law come quickly into focus.

Journey to Big

Every day the global economy becomes a little more interconnected and complex. In contrast, our mental models for the practice of law are very sticky. This is because we need common, coherent and tractable mental models to coordinate organizational goals and effort. Thus, we only change our mental models when they become a source of competitive disadvantage, essentially pitting the pain of building new models against the pain of imminent failure.

The middle-market law firm discussed above is in that uncomfortable in-between state where the need for new mental models is building but the organizational benefits of such a change remain out of focus.  This likely describes most lawyers and law firms.

Below are charts regarding the more rapid grow of large businesses. Yet, these data are supported by our own intuition if we take a moment to reflect on the enormous advantages that accrue to very large companies. These include:

  • Significant economies of scale and scope, which translate into cost and pricing advantages
  • Portfolios of familiar brands that send signals of quality and value
  • A plethora of low-cost sales channels they either control or can readily influence
  • Ample cash on hand to develop new products and services
  • If internal R&D fails, the financial resources to acquire smaller, more innovative competitors

If you’re wondering how important large companies are to the overall economy, review your credit card statement or the bills you pay online each month, such as your mortgage, car payment or student loans.

The graphic below shows how the mix of U.S. employment is steadily shifting to companies with large employee headcounts.

Companies with 500+ employees (purple bars) comprise the largest category in the SUSB data. This is the only group growing in proportionate size, increasing from 45.4% of total US employment in 1988 to 52.5% in 2015.  If the change looks quite subtle, that’s also it’s experienced — so gradual it’s barely noticed. This makes it more difficult to keep our mental models up to date.

The magnitude of the change is easier to observe through a trendline analysis that starts with 1988 as baseline:

The absolute numbers underneath the purple trendline are striking.  Between 1988 and 2015, the total number of companies with 500+ employees increased from 12,800 to 19,500. The total number of employees in the 500+ company category increased from 39.9 million to 65.1 million. Further, total payroll for these companies increased from $958 billion (51.4% of total US payroll) to $3.7 trillion (59.2%). Purple companies, by dint of their sheer size and scale, generate substantial and ongoing legal work for lawyers.  Thus, they are very desirable clients for law firms.

Finally, the trend toward bigness is compounded by the growing portion of purple, orange and gold companies that are partially or wholly owned by private equity. Below is graphic showing an annual count of U.S. companies in private equity-backed portfolios.

Source: Pitchbook, 2017 Annual US PE Breakdown

In our journey to Big, more and more successful businesses with regional roots are becoming assets in multi-billion dollar private equity funds.  According to a recent McKinsey report, even the largest funds ($5B+) are growing faster than the rest of the PE market, increasing from 5% market share in 2010 to 25% in 2017. See “The rise and rise of private markets,” McKinsey Global Private Markets Review 2018 at 14 & Exhibit 9.

What makes all of these trends so powerful is (a) they are all moving to Big and (b) the pattern is near certain to continue. Alas, this is the path of globalization.


How Big affects the practice of law

Once we accept that the legal industry is on a journey to Big, several predictable consequences come into focus. In this post, I’ll discuss three.

1. Legal departments are law firms with structural features that favor efficiency and innovation. Thus, they are taking market share.

Our journey to Big produces legal departments that are comparable to AmLaw 200 law firms or specialized boutiques. Yet, legal department “firms” have several features that favor efficiency and innovation.

To illustrate this point, consider the statistics below from a recent CLOC survey of 156 member legal departments.

Large Companies ($10B+)

Mid-Size Companies ($1B-$9.9B)    Small Companies  (< $1B)
Avg. attorney headcount 188 41 9
Avg. legal ops headcount 21 6 1
Avg. attorney to revenue ratio 1 / $585M 1 / $195M 1 / $65M
Avg. internal spend per legal dept FTE* $225K /  FTE $236K / FTE $175K / FTE
* Legal Dept. FTEs include attorneys, paralegals, legal ops professionals, administrators, and all other members of the department.

Although the per-FTE cost of staffing a legal department appears to be higher in large and mid-size departments ($225-$236K vs. $175K), it hardly matters because the overall cost structure of legal departments gets significantly lower with size, moving from one attorney per $65M (small company) to one attorney per $585M (large company).

Part of the declining cost structure is economies of scale that apply equally to in-house and outside counsel. For example, the legal work for a loan or other type of financing is not ten times more labor-intensive because the monies raised are ten times larger.  Yet, another part is surely greater operational efficiency.  The larger and more mature a company, the more it must rely upon lower per-unit costs to meet its financial targets.  We see this in the CLOC survey above.  When asked to identify their department’s top priorities, the top response was “Controlling outside counsel costs” (76%) followed by “Using technology to simplify workflow and manual processes” (41%). See 2018 State of Corporate Law Departments at 8-9.

Although law firms and legal departments may be doing very similar work, their internal incentives run in opposite directions. Most law firm partners are strongly incentivized to maximize the revenue, either through originations or working receipts.  Likewise, high-billing partners can stifle innovation and efficiency measures by threatening to leave the firm.  In contrast, when a general counsel commits to similar initiatives, in-house lawyers have limited leverage to push back.

[click on graph to enlarge]
These favorable conditions are why the number of in-house lawyers has grown so rapidly. In 1997, there were 35,000 lawyers working in-house. By 2017, the number was more than 105,000.  The chart to the right (updated from Post 003) shows the trendline compared to lawyers in government and private practice.

A recent American Lawyer article by Hugh Simons and Gina Passarella modeled the financial cut point for bringing work in-house.  See “The Rise (and Fall?) of In-House Counsel,Corp. Counsel, Feb. 25, 2018.  According to their analysis, roughly 45% of the AmLaw 100 were performing the type of work that could generate a 2x financial return if brought in-house.  In asking how far insourcing might go, the authors offered a startling benchmark: “70 percent of accountants and auditors work in-house.”

Cost, however, is not the sole reason to insource.  In-house lawyers have an enormous advantage in acquiring essential knowledge regarding client goals and needs. This physical and organizational proximity reduces communication overhead and creates conditions where legal work can be better defined, scoped and managed.  As a result, some of the insourced legal work will eventually be outsourced again, but this time to lower-cost NewLaw service providers.

2. Specialized tranches of work go to law firms and other service providers

Although the journey to Big leads to in-house “law firms” that become very good at process and efficiency, there remains a significant class of work that, for reasons of cost or quality, will continue to go to law firms.  What are the criteria for these decisions?

Below is a graphic that Mark Chandler, the GC of Cisco, showed during the final plenary session of the 2018 CLOC Institute:

[click on graph to enlarge]
Chandler refers to this model as the “Core vs. Context Resource Allocation Model.” It is adapted from Geoffrey Moore’s book, Dealing with Darwin (2005). According to Chandler, this is how Cisco’s legal team makes resource allocation decisions.

The top-right quadrant consumes 65% of the department’s internal resources. The high percentage is warranted because (a) these are mission-critical activities that (b) bear on the competitive advantage of Cisco, a $48 billion technology company that manufactures and sells networking hardware, telecommunications equipment and other high-technology services and products.

The second biggest area of internal resource allocation (20%) is the bottom-right quadrant, which enables business units to more efficiently conduct their activities in a legally appropriate way. Note, however, that “Tools/Processes” are in every quadrant, not just in the self-service green. That is the result of Cisco’s very advanced legal ops function led by Steve Harmon.

Law firms are mostly likely to get work from the left side of the matrix. The work in the top-left pays the most because it is mission critical and Cisco’s in-house staff lacks contextual knowledge to perform the work at the necessary level of quality. Nonetheless, 15% of the department’s resources are dedicated to managing out-tasked work. This is to ensure that the department achieves its cost and quality objectives. The goal in the bottom-left is to lock-in a combination of quality-cost-reliability for low-stakes matters. The best outcome is one that require little to no department oversight.

Under this type of decision matrix, traditional law firms have two clear paths for winning work:

  1. Be best-in-class in an area of law that is mission critical. Cf. Henderson & Parker, “The Five Strategies of Highly Effective Firms,” Am. Law, Jan. 2017 (statistical model showing that practice area specialization is the single most important factor in law firm profitability).
  2. Be outstanding at doing volume legal work.  Cf. Henderson & Parker, “Your Place in the Legal Market,” Am Law, Dec. 2015 (discussing how three firms climbed into the AmLaw 100 by focusing on price-sensitive labor and employment work).

Some law firm partners might dismiss Cisco’s resource allocation matrix as this year’s gimmick. That’s wrong for at least two reasons. First, Cisco has been using this system for 12+ dozen years. I first saw Chandler present a 1.0 version of this model at a 2010 Georgetown Law conference. That slide was dated 2006. Second, this type of resource allocation matrix was featured in a 2018 CLOC Institute session taught by Nancy Jessen (SVP of Legal Business Solutions at UnitedLex) and Elizabeth Lugones (Dir. of Legal Operations, DXC.technology). See DCX-UnitedLex allocation matrix. This session was attended by roughly 300 people. The presenters, however, are innovators or early adopters. See Post 007 (discussing adopter types).  The success they were sharing is what other professionals in the social system will to try to replicate.  This is how innovation diffusion works. See Post 004 (innovation diffuses through social systems).

3. In the long-term, there is no middle market

Because the journey to Big is a very gradual process, it’s easy to confuse slow change with no change. Further, there is a generational effect, with both buyers and sellers of legal services sticking with what they know until external events force them to change. It’s certainly true that a no-change approach will work many lawyers in the last decade or so of their careers.

I have never met a law firm partner who told me that he or she planned to ride out the clock rather than adapt to changing times.  Instead, I hear a lot of lawyers 50+ years of age tell me their “middle market” clients just want excellent service at a cost-effective price.  These lawyers continue to stay busy, or busy enough, because there is demand for what they offer: (1) a personal relationship with a knowledgeable, responsive lawyer who makes difficult legal business issues go away (2) at rates that do not carry the expense and overhead of AmLaw 50 or Global 100 law firms.

Many lawyers like this type of practice because it puts them in control, giving them autonomy and security within their firms. They don’t have to collaborate with anyone if they don’t want to. Arguably, when the business world was itself more middle market and less influenced by private equity, this described the bulk of private law practice. Less so now.  And less so in the future as economic activity is increasingly driven by larger, more complex organizations that have the resources to build out their own sophisticated legal departments.

[graphic from Post 048]
Not only are clients on average getting bigger and thus destine to change their buying habits, but law firms are upping their game, trying to lock-in tranches of work based on some combination of efficiency, expertise, and national or global reach.  Likewise, there is a good chance that emerging businesses that start life in the 3.9% portion of the treemap chart above (<$1M in revenue) used LegalZoom or a similar service to incorporate their business and educate them on things like intellectual property.  How does the middle market lawyer disintermediate LegalZoom? And what is he or she selling beyond a promise of responsiveness?

Strategy and the Fat Smoker (2008) was the last book David Maister, the preeminent law firm consultant, wrote before he retired. Maister starts Chapter 17, titled “The Trouble with Lawyers,” by conceding the point that lawyers are, in fact, different. “The combination of a desire for autonomy and high levels of skepticism,” wrote Maister, “makes most law firms low-trust environments” (p. 231). Thus, according to Maister, firms struggle to execute on strategies that require collaboration and sharing of risk.

If this is true, why do most firms do so well financially?  Maister opines that it’s because lawyers “compete only with other lawyers.  If everyone else does things equally poorly, and clients and recruits find little variation between firms, even the most egregious behavior will not lead to a competitive disadvantage” (p. 239).

This passage invariably garners a good laugh among lawyers, but less so in the future. Law firms inside large legal departments increasingly rely on systems and process. Likewise, to capture a tranche of the legal work that is sourced using a resource allocation model, some law firms are executing on a strategy that requires collaboration and risk sharing. Although most firms struggle with this approach, a firm only has to do marginally better to win.  This is because the most able mid-career lawyers will eventually lateral out of firms unable to offer anything beyond a pledge of great service.

As discussed in Innovation in Organizations, Part I-III (015, 016, 017), firm size is correlated with innovation, not because of size per se, but because size brings with it specialized expertise, financial resources, and better access to a diverse stream of clients. Cf. Post 062 (Jae Um discussing how innovation require high-quality access to buyers and users). Further, the service offerings of marginally more innovative firms are destined to create value that is controlled by the firm, reducing the tyranny of partners with portable books of business. As portions of this legal work get productized, middle market lawyers will have very little left to sell. Thus, as it turns out, the middle market is but a waystation on the journey to Big.


Coda.  The journey to Big has significant consequences for entry-level law graduates and thus legal education. But that is a topic for another day.

What’s next? See Can Microsoft hit “refresh” on client-law firm relations? (068)

Over the summer, Legal Evolution moved to a weekly Sunday publication schedule with an emphasis on long-form content. Readers seemed to like this change, as our page views increased substantially.

Although we are very grateful for this success, Legal Evolution is moving to an unconventional publication schedule.  From Labor Day 2018 until Memorial Day 2019, Legal Evolution will publish bi-weekly (on Sunday or Monday Holidays).  Then, over the summer of 2019–from Memorial Day to Labor Day–we’ll resume weekly publication.

The reason for the change is a desire by the editor (Bill) and our talented regular contributor (Jae) to plan out and execute projects, both writing and other professional commitments, without sacrificing quality.  If our plans work, less frequent content, at least over the fall, winter and spring, will ultimately result in better content.

Thank you for your readership.

What’s next? See Legal Innovation Woes, Part III: Skill Shortage, Emotional Labor & Arrested Development (066)

Credit: Institute for the Future of Law Practice

A handful of farsighted legal employers are seeking to build a better talent pipeline. You’re invited to join them.


Practicing lawyers have long complained about the content of legal education – too much theory, not enough practical skills. If you’re one of those lawyers, do you also believe in the power of markets to improve the value of goods and services? If so, what market signal are legal employers sending to legal education?

As someone who has studied this market for more than 15 years, here is my paraphrase: “We want to hire smart, hardworking, and diverse law graduates, ideally from highly ranked national law schools or those at the top of their class at regional law schools.”

This describes how the majority of law firms, federal judges, and prestigious public interest employers sort through resumes. This is an observation, not a judgment. Information costs are high. Even for pedigree skeptics — and there are quite a few in the legal profession — the road of least resistance is to favor candidates with strong academic markers.

This leaves legal education in a bind – if we build it, you won’t come. Instead, legal education expends enormous energy, and a lot of scholarship dollars, to move up in a rankings competition where quality is determined primarily by pre-law credentials. Indeed, over the last 20 years, there has been a consistent .90+ correlation between schools’ median LSAT scores and their U.S. News rank. This is an input-driven market that does not materially reward improvements in legal education. How do we fix that?

Call to Action

If you are legal employer, here is a simple, low-risk way to send a powerful signal to law schools: Hire an IFLP intern.

IFLP (pronounced “I-flip”) is the Institute for the Future of Law Practice, a nonprofit created by innovative legal departments, law firms, legal service companies and law schools seeking to build a better talent pipeline. IFLP’s core initiative is a 3-week skills boot camp for law students followed by internships (10-week) and field placements (7-months) with IFLP employers. In 2018, 40+ students from five law schools participated in the program. In 2019, we hope to expand to 90+ students from 15 law schools. See 2019 IFLP Curriculum and Internship Program. The long-term goal is to make future IFLP curriculum and internships available to all interested law schools and law students.

This will happen if legal employers send a clear market signal.

If your organization hires an IFLP intern, you are supporting the creation of a curriculum that maps onto the demands of modern law practice:

  • Basic accounting, finance, and industry analysis. According the After the JD Project, law graduates two and seven years into practice report lack of business training as the most significant shortcoming of their legal education.
  • Introduction to legal operations (data, process, technology, design). Legal budgets are not keeping up with the growth in legal complexity. The emerging field of legal operations is dealing with this challenge head-on. The profession needs more operationally aware lawyers.
  • Real-world case studies and simulations. Knowledge can be taught in a classroom, but skill acquisition requires practice within a relevant context. IFLP designs experiential modules so that students can efficiently acquire both knowledge and skills.
  • Teamwork, communication, collaboration, feedback, leadership. Sophisticated law practice has become a team sport. This is reflected throughout IFLP’s curriculum.

If you hire an IFLP intern, you’ll get the benefit of a well-trained law student who takes work off your plate. Your lawyers and professional staff will also react with curiosity rather than defensiveness to the skills and know-how of IFLP interns. This can soften the soil for future change initiatives; it also reflects how a truly effective talent pipeline can deliver second-order benefits to all stakeholders.

If your organization becomes an IFLP employer, you are helping to align the interests of legal education with the long-term needs of clients. Indeed, this is part of being self-regulated profession. IFLP is just trying to make this easier.

IFLP Wave One Launch

If you’d like to learn more about IFLP, please consider attending (or sending someone from your organization to attend) IFLP’s Wave One Launch, which takes place on Wednesday, Sept.12 in Chicago (in Loop) from 5:30 to 7:30 pm. Registration details here.

During the 60-minute program, IFLP instructors from legal departments will discuss their talent needs. Speakers include:

You’ll also learn about the history of IFLP (our initial pilot was in 2014), hear from past and current students, learn how clients and law firms have used internships to create win-win benefits, and obtain information on the supervised internship program (no supervision, just results) in conjunction with Elevate Services. Again, see 2019 IFLP Internship Program.

Industry pioneers behind this effort include IFLP founding sponsors Chapman and CutlerElevate, and Cisco, as well as IFLP employers Archer Daniels Midland (ADM), Auto-Owners InsuranceBryan Cave Leighton PaisnerFenwick & WestHermes LawHonigmanNeota LogicOrrickRelativitySeyfarth ShawThompson HineUnivarColorado LawIndiana University Maurer School of LawNorthwestern University Pritzker School of Law, and Osgoode Hall Law School. In Canada, IFLP industry pioneers include BlakesBennett JonesKiraMcCarthy Tetrault, and Olser.

Thank you for reading. Now let’s increase the market signal to legal education. For additional information, please reach our to IFLP Program Director, Lisa Colpoys at lcolpoys@futurelawpractice.org.


Originally published on LinkedIn on August 23, 2018.  Republished here to help spread the word. wdh.


What’s next? See Legal Evolution’s 2018-19 publication schedule (065)

Legal Evolution is going long on long-form content. This decision is reflected in our move to a Sunday publication schedule, which began in early June.

This editor’s note is made timely by Jae Um’s three-part series, Legal Innovation Woes (062-064).  It is not accurate to describe this work as a blog post.  It is strategic analysis on the legal industry of a depth and quality that is not available anywhere else on the Internet.  Jae is writing not to express her opinion but to solve a very difficult set of industry-level problems.  And that takes word count.

That pretty much covers it.  #SundayReading #LongFormContent. Thank you for your readership.

Continue Reading Long-form content (061)


We lack the experience and vocabulary to describe what is happening in the entry-level legal job market.


Below are four charts that provide context to NALP’s recently released Class of 2017 data. But first, here are some key highlights from NALP’s press release and Selected Findings:

  • Overall employment: 88.6%, up from 87.5% in 2016.
  • Bar passage req’d jobs: 71.8%, up from 67.7%
  • Private practice jobs: 54.4%, up 1.5%
  • Median salary:  $70,000, up $5,000
  • Law firm median: $117,000, up $13,000
  • Hiring in 500+ lawyer firms: 4,606, up 368 jobs

These favorable statistics account for the press release headline “Class of 2017 Notched Best Employment Outcomes Since Recession.”  Similar headlines followed in the legal press.  See, e.g., “Median salaries for new law grads jump to $70K as BigLaw boosts hiring of newbie lawyers,” ABA Journal, Aug. 2, 2018; “Job Market for Law Grads ‘Surprisingly Strong,’ NALP Finds,” Law.com, Aug. 1, 2018; “Law grad salaries rise as big firms up their hiring,” Nat’l Jurist, Aug 3, 2018.

A simple, positive story, right?  The NALP materials contain other other facts, figures, and observations that reveal a much more complex market.  However, they can’t be reduced to pithy takeaways that are both accurate and helpful. To truly understand these data, we have to invest quite a bit of additional time and effort.

The four charts below are designed to partially bridge this gap. (Charts can be downloaded on Slideshare.)


Chart 1. Jobs in private practice continue to decline

Drawing upon the NALP press release and select findings, the news reports cited above all emphasize the increase in BigLaw hiring. In Chart 1, the supporting data are inside the orange circle.

Yet, when the Class of 2017 is viewed in a longitudinal context, the most striking feature is the continued decline in the total number of private practice jobs. Granted, jobs are down, at least in part, because the supply of entry-level talent is down.  Some employers hire more when talent is plentiful and cheap. However, it is not accurate to say that law firm hiring has rebounded from the recession. The recession was 10 years ago, yet the number of private practice jobs is lower now than at any time since the beginning of the recession.

Those of us in legal education need to understand why this is happening. See Post 057 (solving difficult problems require accurate understanding of root causes).


Chart 2. “Good news” is produced by fewer grads

As shown in Chart 2, over the last seven years, law school has become a lot less attractive to prospective law students. The class of 2017 had 34,922 graduates, which is the lowest level since 1982.

The higher employment rates for the Class of 2017 are due to smaller classes rather than an increase in the total number of jobs.  The complexity of this job market can be seen in the first paragraph of the Commentary and Analysis written by NALP’s executive director, Jim Leipold:

[Good news:] The employment outcomes findings for members of the Class of 2017 are surprisingly strong. Most notable is a bar passage required employment rate that jumped more than four percentage points from the previous year, and a private practice employment rate that has now increased for six years in a row. [Complexity:] Undergirding the strength of the employment outcomes, however, is a smaller class and not more jobs. For the fourth year in a row the employment rate has been shaped by a smaller number of jobs and a smaller graduating class size. The employment rate has risen because the falloff in the size of the graduating class has been larger than the falloff in the number of jobs secured. Notably, like the two classes that preceded it, this class secured fewer private practice jobs than any class since 1996.

This is important information, but what exactly are we supposed to do with it? It’s great that a higher proportion of students are getting better employment outcomes. But does the continued slide in law firm jobs require some type of collective action or response?  If so, who would make this call and what would they advise?  Unfortunately, we have no ready answers.  This is our conundrum.  Cf. Post 056 (discussing likelihood that law is entering a period when we will need lawyer-leaders to handle very difficult organizational and industry-wide problems).

Based on fall enrollments in 2015-17, we can forecast with reasonable accuracy the graduating classes in 2018-2020. All of them are likely to be smaller than 2017.  Thus, in terms of employment rates, we can expect three more years of “good news.”  We should use that time wisely.


Chart 3.  Relationship between law school debt and lawyer salaries

Chart 3 shows the relationship between law school debt and starting salaries, which are useful proxies for cost and perceptions of future earning potential. Since 2010, average student debt has rapidly outpaced entry-level salaries. This divergence is the simplest explanation for the massive drop-off in law school enrollment.

Fortunately, we are finally at a point where debt loads are headed downward while median salaries are tilting upward. The remaining gap, however, remains very large compared to the early to mid-2000s. Until these lines are brought closer together, those of us in legal education are going to struggle to grow our enrollment. This is very hard work, as it requires increasing the value of legal education — in the eyes of students and employers — without increasing our base costs.  In short, this is a design problem. A good number of law faculty understand this; hence the growing emphasis on innovation. See, e.g., Law School Innovation Index.


Chart 4. BigLaw will not save us

One of the NALP findings latched onto by the legal press was the increase in hiring among 500+ lawyer firms — up 368 jobs, or 8.6% from the prior year.  However, the data in Chart 4 suggest that BigLaw is unlikely to power a recovery for law schools.  Although the number of lawyers working in 500+ lawyer firms has increased significantly over the last 11 years (+36%), associates appear to be waning in importance. We see this through the shrinking proportion new-hires within large law firms.  Why is this happening?

A partial answer is that firms are finding it harder to sustain organic growth. See, e.g., Georgetown Law, “2018 Report on the State of the Legal Market” at 14 (“Since 2008, the overall growth trend for demand for law firm services has (with certain spikes and dips) been essentially flat to negative in every year.”); MacEwen, “It’s [not] The Economy. Stupid,” Adam Smith Esq., Aug. 5, 2018 (showing large drop-off in annual revenue growth after 2008). Because many lawyers and firm managers associate size with safety, growth through mergers and lateral partner hiring has become a dominant strategy.  The idea is to focus on groups of lawyers who can pay their own way in the current fiscal year.

One of the primary consequences of this strategy is that firms are relying less on associates and more on staff attorneys, counsel, and non-equity partners. See Henderson & Parker, “The Diamond Law Firm: A New Model or the Pyramid Unraveling?,” Lawyer Metrics Industry Report No. 1 (2013). First-year associates require higher salaries; more training and supervision; engender greater client pushback; and often leave before the firm recovers recruitment costs. Thus, large firms are finding ways to get by with fewer of them.

The orange trendline in Chart 4 also reveals another factor that is likely impacting entry-level hiring in the 500+ lawyer category: the number of 500+ lawyer firms is increasing.  In 2010, there were 76 firms with 500+ lawyers. By 2016, the number increased to 87.  A year later, it jumped to 91. Indeed, in 2007,  65.5% of the lawyers in the AmLaw 200 worked in 500+ lawyer firms; by 2017, this percentage increased to 75.5%.

Are the largest firms hiring more entry-level lawyers? Or are the mega-firms just taking up a larger share of the total corporate market? The latter trend would explain why entry-level hiring in 500+ lawyer firms is up while the total number of private practice jobs is at a 22-year low.


Conclusion

For many of us working in the legal field, we treat the NALP data as something we passively consume. Every year we do so without much thought or effort.  This is a conditioned response based on several decades of uninterrupted prosperity. In our experience, things have always worked out, so we can count on that pattern to continue.

Yet, the practice of law is changing in very significant ways, primarily because clients are changing how they buy legal services. There will be no shortage of opportunities for lawyers, legal educators, and recent law grads who get out into the field and obtain insight into what these clients really need. Those insights will tell us what to do.

(Charts can be downloaded on Slideshare.)


“It is never wise to discourage youthful idealism” — Steven Kinzer, journalist


In 1977, a 27-year old Yale Law graduate named Joel Hyatt resigned his position at the prestigious New York firm of Paul, Weiss, Rifkind, Wharton & Garrison to return to his hometown of Cleveland and open a storefront legal clinic that catered to the needs of working- and middle-class people.  Five years earlier, two recent UCLA Law grads, Len Jacoby and Steven Meyers, embarked upon a similar storefront concept in the Van Nuys section of Los Angeles, albeit they struggled to earn a living in the early years, primarily because their low-cost model lacked a steady flow of paying clients.

What inspired Joel Hyatt, and saved Jacoby & Meyers, was the Supreme Court’s decision in Bates v. State Bar of Arizona, 433 U.S. 350 (1977), which struck down the legal profession’s longstanding prohibition on lawyer advertising. Less than a decade after Bates, both firms were among the largest in the nation.  At their peak in 1985, Hyatt Legal Services ranked #2 in the NLJ 250 (674 lawyers) while Jacoby & Meyers reached #31 (297 lawyers).  By the mid-1990s, however, both firms had essentially vanished, abandoning the storefront clinic concept in favor of new business models that could save them from financial ruin [see graphic above].

The problems of cost and access that inspired the storefront revolution are still very much with us.  Yet, remarkably, very few lawyers under the age of 50 are familiar with Hyatt Legal Services and Jacoby & Meyers. More troubling, however, is that an even smaller number of lawyers understand why these two firms failed. The fresh perspective of youth is a remarkable tool. But so is history.  I am writing this post because we need a generation of lawyers that has the benefit of both.

The power of advertising

The storefront clinic model did not fail because of a lack of consumer interest. Rather, the difficulty was the inability to convert a customer base of millions of people into a stable and profitable business.

The underlying problem is suggested by the facts of the Bates case. In Bates, the U.S. Supreme court reviewed the legality of an advertisement in the Arizona Republic designed to attract customers to a Phoenix storefront legal clinic. Similar to Jacoby & Meyers, the clinic was premised on a low cost/high volume model. Prior to opening their law firm, both John Bates and Van O’Steen had worked as attorneys for the Maricopa County Legal Aid Society.

What years of experience taught them, however, was that their practice could only be viable if they had a sufficient volume of relatively routine cases; and that advertising was the only feasible way to generate the requisite demand. 433 U.S. at 354. Their ad [in graphic to the right] resulted in a disciplinary complaint by the State Bar. In turn, the Arizona Supreme Court upheld the Bar’s ethics rule that prohibited paid publicity in newspapers, magazines, telephone directories, radio or television.

In August 1977, two months after the U.S. Supreme Court ruled in favor of Bates and O’Steen, Jacoby & Meyers became the first law firm to experiment with TV ads.  The pitch was straightforward: large corporations have corporate lawyers; the poor have legal aid; now finally there is a convenient and affordable option for the middle class.

Below is a video of a first generation Jacoby & Meyers commercial from the late 1970s.

The advertisements proved to be remarkably effective in generating volume.  At their peak in the mid-80s, both Hyatt Legal Services and Jacoby & Meyers spent $5-7 million per year in advertising targeted at middle-class consumers in need of wills, divorces, bankruptcies, real estate closings, and representation in personal injury cases.

Paying for technology and marketing

According to the National Law Journal, Hyatt Legal Services had four partners in 1985 while Jacoby & Meyers had 22.  How did these firms afford the advertising along with the large upfront investments in real estate and computer technology?

Jacoby & Meyers set up a management company that provided various marketing and support services to the law firm. In 1983, this company took $4.3 million in funding from Warburg Pincus, a New York-based private equity firm.  Hyatt Legal Services received substantially more funding through a joint venture with tax preparation giant H&R Block. Similar to the Jacoby & Meyers arrangement, Hyatt Legal Services received marketing, office space, and support services from an entity called Block Management Company, which was 80% owned by H&R Block and 20% owned by Hyatt.  The initial idea was to better utilize the H&R Block’s office space during the large portion of the year when ordinary consumers were not focused on their tax return.  See Karen Dillion, “After the Revolution,” Am. Law., Apr. 1996 at 79.

In the year 2018, the innovation of setting up parallel law firm and services companies is commonly attributed to Clearspire, the NewLaw company founded in 2008 by Mark Cohen and Bryce Arrowood.  A more recent incarnation that has attracted a lot of attention is Attrium LLP (law firm) and Attrium LTS (legal technology services company). See, e.g., Bob Ambrogi, “Is ‘Revolutionary’ Law Firm Atrium A Case of Clearspire Déjà Vu?,” Above the Law, Sept. 18, 2017.  Yet, this is exactly the business configuration used by Jacoby & Meyers and Hyatt Legal Services a full generation earlier, albeit in the PeopleLaw sector as opposed to the corporate market. Cf. Post 053 (reviewing similar configurations by UnitedLex and Elevate). Throughout this period, Hyatt’s legal counsel was Yale law professor and legal ethics giant Geoffrey Hazard.  See Martha Middleton, “Hyatt’s TV Troubles,” Nat’l L.J., Feb. 13, 1984, at 9.

Financial losses

Unfortunately, investors in the storefront revolution did not fare well.

Despite massive increases in size and revenues, both Jacoby & Meyers and Hyatt Legal Services struggled financially. By 1990, Warburg Pincus had written off its entire investment in Jacoby & Meyers.  See Dillon, supra.  Further, to improve its balance sheet, Jacoby & Meyers began the process of divesting its many law firm offices and focusing more marketing effort in the area of personal injury, eventually finding relative financial success in aggregating claims for mass tort litigation.

In 1987, H&R Block sold its interest in the management company to Joel Hyatt, referring to its multi-year investment as “a wash.” Dillon, supra.  The financing of the buyout was provided by Robert M. Bass Group, the personal investment company of Texas billionaire Robert Bass. In turn, Hyatt Legal Services spun-out its prepaid legal services business into a separate entity, Hyatt Legal Plans Inc., which was partially capitalized by Robert Bass and $27 million from the Sheet Metal Workers’ National Pension Fund (the 130,000-member Sheet Metal Workers were heavy users of prepaid legal services through the benefits package they negotiated with employers). See Dillon, supra.

According to news reports of his 1991 tax filings, Joel Hyatt reported a $300,000 loss that year and had a $2.4 million deficit in his Hyatt Legal Services capital account due to accumulated losses over a period of years. See Mike France, “Hopes Hobbled; Legal Clinics: Lights Go Out On Storefronts,” Nat’l L.J., Dec. 12, 1994, at 3. Fortunately for Hyatt and his partners, as they were levering down their law firm network, in some cases selling the offices to local managing lawyers, they were gaining traction with their prepaid legal services plan, successfully landing accounts with General Motors, Caterpillar, Navistar, Mack Truck, American Express, and AT&T.  See Dillon, supra.

The final chapter of the storefront revolution occurred in 1997, when Hyatt Legal Plans was sold to Metlife. To this day, it operates as a Metlife subsidiary under the Hyatt brand.

Why did the storefront revolution fail?

Fortunately, the work of sociologist Jerry Van Hoy offers us some clues.  During the late 80s and early 90s, Van Hoy was a graduate student at Northwestern University and a research fellow at the American Bar Foundation.  Van Hoy’s PhD dissertation focused on the rise and operation of so-called “franchise” law firms.

Although Van Hoy’s research relied upon fictional names — Arthur & Nelson and Beck & Daniels — both organizations were reported to be pioneers in attorney advertising and both relied upon that success to build large multi-state networks of storefront offices. These facts limit the universe of possible franchise firms to two: Jacoby & Meyers and Hyatt Legal Services.  Van Hoy wrote up his findings in a peer-reviewed article, see “Selling and Processing Law: Legal Work at Franchise Law Firms,” 29 Law & Society Rev. 703 (1995), and a subsequent book, see Franchise Law Firms and the Transformation of Personal Legal Services (1997).

It is worth noting that Van Hoy conducted his field research in 1990 and 1991 when both firms had already passed their peak sizes and were working hard to find a operational model that would deliver a stable and satisfactory return to both the local offices and the national law firm.

Van Hoy paints a picture of low pay and long hours.  Staff attorneys at Arthur & Nelson earned an average income of $29,000 per year (with variability based on bonus) and worked an average of 57 hours per week.  Hours were slightly better at Beck & Daniels (50 hours per week), but the average pay, including bonus, was also lower ($23,000 per year).  Although the bonus schedule, which was based on type and volume of work, held out the promise of considerably higher incomes, those payouts proved elusive, as office managing lawyers often diverted the most lucrative work to themselves.

The economics of the business model also demanded a relentless focus on routine work. To achieve the optimal flow, front office secretaries would field phone calls, identify clients that matched up to the firm’s limited menu of service offerings, and schedule appointments. Once the prospective clients arrived at the office, a staff lawyer would sell the services, ideally within the standard 15-minute consultation. Finally, a back office secretary would complete the work with the benefit of firm templates and computer technology. The more novel and unusual the legal work, the less money the attorneys would make, as the extra work put them in the hole regarding monthly revenue targets.

Because “selling of services is often the longest part of initial consultations” and “divorce is the most commonly provided service” at both firms, “attorneys quickly learn not to let clients become too emotional.” 29 Law & Soc’y Rev at 719.  This was accomplished by carefully following intake scripts and relying upon well-rehearsed summaries of law that could bring prospective clients more quickly to decision points. One franchise attorney observed, “we just make circles in crayon,” referring to the client worksheets that were handed to secretaries to create legal documents. 29 Law & Soc’y Rev at 725.

Despite the relentless emphasis on volume, Van Hoy acknowledged that one of the virtues of the franchise model was that it was quick to screen out or turn away clients with legal problems that didn’t fit the firms’ cookie-cutter approach. Because only the most simple and straightforward cases remained, Van Hoy observed, “there is little reason to believe that clients are receiving inadequate services.” 29 Law & Soc’y Rev at 719. Based on months of observation in several offices of both firms, Van Hoy concluded, “[C]lients whose problems fit into the production systems appear to be well served by franchise law firms.” 29 Law & Soc’y Rev at 727.

Although the majority of paying clients may have benefitted from the franchise model, the long hours, low pay, and routine work proved to be professionally unsatisfying for the staff lawyers. At both firms, managing lawyers reported 100 percent turnover every two years. Franchise Law Firms at 91.  Not surprisingly, within the production system, staff lawyers were viewed as far more fungible than the legal secretaries who screened clients or performed the template-driven legal work.  Indeed, secretaries, often with little more than high school educations, routinely earned salaries only a few thousand dollars less than staff attorneys.  At one of the firms, the managing attorneys openly acknowledged that they would “rather lose a staff attorney than have to replace an experienced secretary.” 29 Law & Soc’y Rev at 710.

Van Hoy explains the lynchpin of the entire model:

Many lawyers employed by franchise law firms openly worry that licensure and court protections of lawyers from the unauthorized practice of law are all that protect their positions. And yet it is also inappropriate to say that secretaries have been elevated to the level of legal experts by franchise law firms. The point of mass production and the franchise organization of work is to reduce task complexity to the point where no experts are necessary.

29 Law & Soc’y Rev at 725.

Despite the fact that both firms placed the burden of office profitability on the office managing lawyers, the sizable revenue cut going to the national office (~35-40 percent) was insufficient to reliably cover all of the national firms’ operating costs. According to a 1996 article in The American Lawyer, Hyatt Legal Services tried to raise its prices for some of its core offering (e.g., raising the price for a consumer bankruptcy from $350 to $450), but “demand dropped significantly.” Dillon, supra, at 79. After the economy went into a recession in early 1990s, both firms moved quickly to exit the storefront legal business.

Lessons from the storefront revolution

One of the reasons that the problem of access and affordability of legal services is still with us is that members of the legal profession are unable to agree on its root causes. Cf. Post 057 (discussing framework for solving very difficult problems). Thus, I don’t expect all readers to agree with my analysis on lessons learned from the storefront revolution.

In brief, I believe that the youthful and idealistic visions of Joel Hyatt, Len Jacoby, and Steven Meyers failed because, within the existing regulatory structure, they were unable to balance the needs of ordinary people, who were cash-strapped and intimidated by the legal system, with the needs of licensed lawyers seeking rewarding work for adequate pay.

Some practicing lawyers may resent this characterization, but Hyatt Legal Services and Jacoby & Meyers were/are professional service firms.  The fundamentals of this model are explained by David Maister in his classic book, Managing the Professional Service Firm (1993).  Obviously, a professional service firm can only succeed if it can operate profitably.  Yet, that outcome is only possible if a firm’s management can simultaneously succeed in two markets: the market for clients and the market for talent. See Post 010 (discussing model in the context of managed legal services).

The graphic below depicts the Maister model:

To operate at a price point that ordinary consumer would accept, the franchise law firms had to efficiently filter out the mass of legal work that did not fit the firms’ template-driven model.  Although advertising revealed the volume of routine work to be incredibly large, the work itself proved to be professionally unfulfilling and insufficiently remunerative for the vast majority of law school graduates.

Yet, the overall personal services market was not much better.  Van Hoy grimly observed, “My data suggest that unsuccessful solo practitioners seek refuge as employees of franchise law firms far more often than staff attorneys become successful solo practitioners.” 29 Law & Soc’y Rev at 714. (Note this field work was conducted nearly three decades ago.)

Despite the high levels of dissatisfaction among line lawyers, Van Hoy reported the opposite experience for the secretaries:  “[W]hile many attorneys look forward to the day when they can move on to more satisfying work, their secretaries marvel at how nice it feels to be helping clients.” 29 Law & Soc’y Rev at 728.

Doesn’t this last observation suggest that there is, indeed, a large tranche of legal work that would be better performed by paraprofessionals or technology than licensed lawyers? If so, why are we so reluctant to accept this fact and modify the rules of professional conduct to ease the pathways for this type of practice?  Perhaps there is fear that these new models might climb the value chain and encroach upon more lucrative areas of practice.

Regardless, among those of us with law degrees, we ought to be able to acknowledge that these are tricky, emotional issues tied up with our self-image and professional identity.  For example, former Chief Justice Warren Burger once said that he would rather “dig ditches” than advertise.  Stephen Labaton, “Propriety on Trial in Lawyers’ Ad,” N.Y. Times, Mar. 21, 1988, at D1 (quoting C.J. Burger). A decade earlier, in his dissent in Bates, Burger wrote, “legal services can rarely, if ever, be ‘standardized.'” 433 U.S. at 386.  40 years of experience reveal that statement to be incorrect.  Based on his belief that law could not be reliably broken into standardized pieces, Burger concluded that advertising based on the promise of reasonable fees “could become a trap for the unwary.” Id. at 387.

Yet, for ordinary citizens with little money or sophistication, what are the alternatives?

To his credit, Burger was aware of the problem, writing, “the legal profession in the past has approached solutions for the protection of the public with too much caution, and, as a result, too little progress has been made.” Id. at 388. Burger’s preferred solution, however, was not to strike down the Arizona State Bar’s ban on lawyer advertising but, instead, to give the organized bar more time to solve the underlying problem of access and affordability. Id.  Unfortunately, 40+ years later, we remain in much the same place, while the storefront revolution set off by Bates has failed and, more troubling, is largely forgotten. Although we are supposed to a “learned profession,” Model Rules of Professional Conduct, Preamble Comment [6], we have a tendency to be ahistorical.

In the profession’s defense, these are profoundly difficult problems. Moreover, the closer we get to them, the more we see their complexity.

At a recent boot camp session at the Institute for the Future of Law Practice, an expert in legal design and process related her experience of helping out a local legal aid organization to improve its processes. The goal, of course, was to stretch limited resources to serve more clients. The legal aid attorneys, however, reacted with horror, as they could not imagine the emotional burden of managing an even larger caseload.  In their view, the hard limit was not attorney time but one’s human capacity to invest mentally and emotionally in the life and legal problems of individual clients.  That capacity is very high for legal aid lawyers, but it’s not unlimited.

Our inner guild

For the last decade, I’ve covered the storefront revolution in my 1L Legal Professions class.  See Legal Professions Material, Chapter 10 (section 10.3). During the class session, we review Van Hoy’s research data, including: (1) that staff lawyers found the work unsatisfying and unremunerative; (2) that legal secretaries did the vast majority of the legal work; and (3) that the lawyers’ role was primarily to act as a salesperson, a role made necessary by the ethics rules.  We also recount that, despite a large volume of clients obtaining value from franchise law firms, the model itself failed, primarily because it was unable to pay sufficient wages to lawyers.

I then poll the class and ask how many would be interested in taking a job in a franchise law firm. In most years, I seldom get more than one or two takers, and invariably they stipulate that a franchise law firm would be an employment option of last resort.

I then ask whether the ethics rules (specifically Rule 5.4 and Rule 5.5) should be modified to permit an alternative business model where this type of work could be performed by paraprofessionals, such as the legal secretaries at Arthur & Nelson and Beck & Daniels, who seemed to thrive in the franchise law environment.  Remarkably, every year a majority of students vote to maintain the status quo.  That, I believe, is our inner guild.  It is less likely a product of socialization during 1.5 semesters of law school than part of our human nature. I believe it can be overcome, but not without a lot of thought and effort by creative lawyers and leaders who can draw a compelling vision of the future. Cf. Post 056 (discussing my Deliberative Leadership class and why I created it).

I am also convinced the most likely people to fill this leadership void are young lawyers, similar to Joel Hyatt but separated by four or five decades of additional knowledge on how why these serious problems persist.

Further, these problems have grown in urgency.  Cf. Post 037 (presenting data on the decline of the PeopleLaw sector); Post 042 (presenting data that consumers are forgoing legal services). Last year, I read a line in Gillian Hadfield’s new book that I continue to think about daily: “[P]eople who feel as though the rules don’t care about them don’t care about the rules.”  Rules for a Flat World (2017) at 79.  At least in the U.S., I am worried that we have moved perilously close to this line. Who else but members of the legal profession can step up and attempt to guide the collective back to a safe place. To do that, however, we can only accept a legal system that works for ordinary people.

In remembering the storefront revolution, I have an advantage, as I was a teenager in Cleveland, Ohio when 27-year old Joel Hyatt launched Hyatt Legal Services and filled the airwaves with this fresh, charismatic pitch. Below is a 10-minute compilation of TV ads for Hyatt Legal Services.   If you watch the whole reel, you’ll likely be surprised by how much Hyatt’s language foreshadows the marketing of LegalZoom, Avvo, and other large companies in the PeopleLaw space. One line, however, [at 10:15] really stands out:

Somewhere, in all these dusty law books, a great idea got lost — the idea that law is for people, and people should be able to afford it.



Coda: Joel Hyatt remains in the legal business. He lives in Northern California and serves as CEO of Globality, a lawyer-to-lawyer legal marketplace that matches corporate clients with small and midsized firms throughout the world.  In my opinion, Joel Hyatt has more than paid his dues.

I wrote this post at least in part to advance the dialogue in my 1L Legal Professions class. I invite my fellow PR instructors to do the same.

What’s new? See Four charts to better understand the Class of 2017 (060)

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.


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.

What’s next?  See The failed storefront revolution and the inner guild in all of us (059)



The Difficult Problem Framework is a simple tool that requires continuous learning and objectivity. Part II of a two-part series.


The framework above was developed to solve very difficult problems related to organizational change, particularly those now facing the legal field. I realize the framework looks laughably simple. That said, it’s harder to apply than you might think.

Part I (056) summarized my Deliberative Leadership course at Indiana Law, which gave me the opportunity to learn about and reflect on these topics.  In Part II, I explain Difficult Problem Framework (DPF), starting first with the basic mechanics of how it works and then providing examples drawn from Deliberative Leadership and other materials.

One caveat: Initially, this post will seem more focused on decision-making than leadership.  The goal, however, is effective leadership that has a chance at solving difficult problems. As you will see, the leadership part is already within our grasp. Effectiveness, however, requires more of a set-up.

Box 1: accurate assessments and root causes

Box 1 is the space where someone — a leader / innovator / change agent — seeks to understand a difficult problem and identify its root causes. Thus, Box 1 is primarily about fact-gathering and reasoning. To do it right, we observe the problem, locate relevant data and research, ask questions, listen, reflect over a period of days/weeks/months/years, write out our analysis in a clear and ordered way, and remain on the lookout for disconfirming evidence that reveals faulty assumptions or conclusions. In this respect, feedback loops are especially valuable. Cf. Chris Arygris, “Teaching Smart People How to Learn,” Harv. Bus. Rev., May-June 1991 (discussing double-loop learning).

Box 1 has two potential failure points. First, our assessment of the present is inaccurate due to insufficient fact-gathering, faulty unstated assumptions, lack of rigor, or something else (1A failure). Second, after constructing what we believe is an accurate analysis, we never leave Box 1, as we believe the hard part, or important part, is done (1B failure).

Readers may laugh when I say that Box 1 activities are similar to writing a peer-reviewed academic article. As we all know, however, academic journals are filled with symposia articles on problems that remain unsolved. Obviously, something is missing. That’s a 1B failure, the most common type for those of us in the academic crowd.

In contrast, practicing lawyers band together into firms that place a heavy emphasis on revenue generation. This leaves little time to read, reflect, and understand difficult problems that are one or more steps removed from the immediate demands of client work.  Despite being liberated from timesheets, in-house lawyers are not much better. In both contexts, daily responsibilities thwart deep systems thinking. This dynamic keeps the entire profession stuck in a rut of 1A failure, as we are trying to solve our most systemic problems with after-hours resources.

The image below captures our dilemma (H/T Casey Flaherty).

 Box 2: change strategy

Box 2 is about effective change strategy. Here, the operant conditioning of law school gets in the way, as we spend most of our time learning how to construct arguments that could prevail in a court of law. If we do it well, our reward is law review membership and a high-paying job. Yet, it’s also a problem-solving approach based purely on legal authority.  That’s a big limitation.

Even if a client’s life or business problem might turn on question of law, most clients can’t afford to engage the wheels of justice. And even they can, few leave the courthouse feeling good about the experience. Thus, lawyers with large practices eventually build out a toolbox of nonlegal skills. In fact, Shultz & Zedeck documented 26 different tools. See “Identification, Development, and Validation of Predictors for Successful Lawyering,” LSAC Final Report, Sept. 2008.

If we move on to organizational problems — e.g., law firms, law schools, legal departments, court systems or regulators struggling to adapt to changing time — and we are paying any attention at all, we soon observe that stakeholders are seldom won over by reasoned arguments. In fact, they may not even show up for the meeting. If they do, their head may be elsewhere. For those who show up and listen, they’ll likely want to modify our ideas with some of their own. Suffice it to say, no one leaves these meetings with a quorum for change.

Several years ago, I learned this lesson the hard way, as I was part of a team building and selling evidence-based tools to lawyers. See Post 004 (discussing Lawyer Metrics); Post 016 (same). Straightforward presentation of data, even when connected to bottomline results, is not effective to win over a group of well-credentialed professionals. Cf. Daniel Kahneman, Thinking, Fast & Slow 227-29 (2011) (discussing hostility to algorithms, particularly when they demystify professional judgement). These experiences eventually drove me to diffusion theory and the insight that innovation adoption occurs through a social system where innovators and early adopters go first. When these two groups benefit, the rest of the social system follows. See Post 004 (presenting theory); Post 007 (providing detail).

Diffusion theory, however, is but one of many theories and frameworks that can improve our odds of desirable change. I’ll give a few examples below, many of which are not only connected with leadership, but also meaning, purpose and fairness. But for now, the core point is that Box 2 requires us to continuously learn new ideas and reflect on how they might connect to our difficult problems. This is no less time-consuming than the Box 1 analysis.

Difficult problems and decisionmaking

To summarize: We can only solve a difficult problem if we can accurately assess its root causes. This requires a major investment of time and resources to get right (Box 1). Thereafter, we need to formulate an effective change strategy that goes well beyond explaining/publishing our analysis (Box 2). The purpose of the DPF is to keep these two activities separate and analytically distinct.


Correct root causes + right change strategy = chance at success

Going a bit deeper, solving difficult problems is a thinking person’s game where the biggest risk factors are (a) self-deception that causes us to underinvest in learning, fact-gathering and reflection, and (b) bias and distortion in how we evaluate information. Through work ethic and mental training, we can mitigate these risk factors, but never completely. On this score, I’d recommend four “applied” resources: Charlie Munger, 24 Cause of Human Misjudgment (1995) (75-minute audio); Daniel Kahneman, Thinking, Fast & Slow (2011); Randall Kiser, How Leading Lawyers Think (2011); Ray Dalio, Principles: Life and Work (2017).

Let’s now move from the abstract to the concrete.

Box 1: what are my assumptions?

The example below is based on an assignment in Week 1 of my Deliberative Leadership class.

Imagine you are an executive at General Motors in 1984. For reasons of cost and quality, the company has been losing marketshare to the Japanese. You’ve given this a lot of thought and concluded that the root cause of GM’s woes is an old, expensive and undisciplined workforce protected by overly generous union contracts.  Until that gets solved, the company cannot effectively compete with companies like Toyota, GM’s most formidable Japanese competitor.

This problem set is based on New United Motor Manufacturing, Inc. (NUMMI), which was a joint venture between GM and Toyota launched in the mid-1980s at an old GM auto plant in Fremont, California. Basically, this came about because Toyota was making great inroads in the U.S. market. To preempt a protectionist backlash, Toyota needed a plan to shift some of its production to the U.S. and learn how to adapted to U.S. workers. For GM, it was an opportunity to learn Toyota’s lean production methods, which combined world-class quality with world-class efficiency. This story is expertly told in a 1-hour podcast produced by This American Life. See NUMMI 2015, episode 561 (July 17, 2015).

The first part of the episode details the problems that existed at the GM Fremont plant prior to its closure in 1983 — pretty much non-stop drinking, drug use, absenteeism, and antagonism toward management.  According to Bruce Lee, who ran the western region for the UAW, “It was considered the worst workforce in the automobile industry in the United States. And it was a reputation that was well earned. Everything was a fight. They spent more time on grievances and on things like that than they did on producing cars. They had strikes all the time. It was just chaos constantly.”

In negotiating the re-opening of the Fremont for the NUMMI joint-venture, the UAW demanded that GM and Toyota rehire a substantial portion of the old Fremont facility workforce (it would turn out to be 85%).  Remarkably, Toyota was willing to go along.  According to NPR automotive correspondent, Frank Langfitt, ” Toyota execs believed their system would turn bad workers into good ones.”

The rest of the episode tells the story of how, under the Toyota production system, the Fremont facility went on produce world-class quality on par with the rest of the Toyota system.  What changed everything was the inclusion of workers in a team-based process of continuous improvement. For the first time on their careers, these old, tired workers were asked for their ideas on how the cars could be made better and more efficiently.


1A Failure

NUMMI is a vivid example of a 1A failure. The root cause of the problem was not the people; it was the system. For me, this lesson hit close to home because during the early 1980s, I was a college student living in Cleveland, Ohio. Pretty much the entire region blamed the workers and union for the decline of the industry.

The lessons of NUMMI are supported by others materials assigned during Weeks 1 and 2, such as Batman, This American Life, Episode 544 (Jan. 9, 2015) (expectations in our head have a profound effect on the physical and social world); Viktor Frankl, Why Believe in Others, Ted.com (video) (Jewish-Austrian neurologist who survived Nazi concentration camp and wrote Man’s Search for Meaning exhorting group of Americans to elevate their expectations of others and thus enable them to reach their full potential); Carl F. Braun, Management and Leadership (1948) (leader of C.F. Braun & Co., an international engineering and construction company, outlining the principles of human respect, dignity, and collaboration that underlie the company’s financial and technical success).

As these excerpts suggest, perhaps the root causes of organizational and institutional malaise are not exclusively gaps in logic or analytical rigor. Rather, a major root cause could be lack of clarity around purpose and, until that gets resolved, worry over status, hierarchy, and security.

Box 2: the missing link

I’ll admit that it wasn’t until that fourth year of Deliberative Leadership that I realized that there was a second box.  The turning point was this spring when Alli Gerkman, Director of Educating Tomorrow’s Lawyers, visited by class.  One of her selected readings was an article on an internal study by Google’s People Analytics group, dubbed Project Aristotle, that attempted to identify the attributes of high performing teams. See Charles Duhigg, “What Google Learned From Its Quest to Build the Perfect Team,” N.Y. Times Magazine, Feb. 25, 2016.

Google had long observed wide variations in team performance.  If it could isolate the factors consistently associated with high performance, perhaps they could be scaled across the entire organization.  Yet there were many false starts. In particular, Project Aristotle invested a lot of time and resources looking at how team compositions based on personality, skills or background affected team performance.  “No matter how researchers arranged the data,” wrote Duhigg, “it was almost impossible to find patterns — or any evidence that the composition of a team made any difference.”

Eventually this led the Aristotle team to the social science on group norms. One line of this research suggested that norms within groups may produce a “collective IQ” that is distinct from the intelligence of any single team member.  This hypothesis proved to be the missing link in Google’s research.

So, what is the cultural factor that explains high-performing teams at Google?  Psychological safety.


“Google’s data indicated that psychological safety, more than anything else, was critical to making a team work.”

According to Professor Amy Edmondson of Harvard Business School, who conducted much of the group norm research relied upon by Project Aristotle, psychological safety is a ‘‘shared belief held by members of a team that the team is safe for interpersonal risk-taking. … [and] a sense of confidence that the team will not embarrass, reject or punish someone for speaking up.” Edmundson, “Psychological Safety and Learning Behavior in Work Teams”, 44 Admin. Sci. Quarterly 350-383 (Dec. 1999). From the outside, a psychologically safe group might appear free-flowing and chaotic. Yet, because of group norms, the members are very good at allocating airtime equally and truly listening to one another.

This past spring, I gave two talks on leadership, one to group of young lawyers and another to a group of students from several law schools. In both talks, I explained the Google research, presented the definition of psychological safety, and asked audience members to anonymously complete a notecard that said whether their workplace or law school was psychologically safe (“yes”, “no”, “something in between”).  I then collected passed along the basket of notecards, letting each person draw a random card. Finally, I polled the results by having audience members raise their hands.  In both cases, less than 1/3 reported feeling psychologically safe. That’s a problem.

Connecting it together

For all four years of Deliberative Leadership, I have assigned a well-known article on authentic leadership. See Bill George, et al., “Discovering Your Authentic Leadership,” Harv. Bus. Rev. (Feb. 2007).  It’s an attractive thesis — that the most effective leaders “demonstrate a passion for their purpose, practice their values consistently, and lead with their hearts as well as their heads.”  Yet, the Google article got me to think that perhaps the authentic leader’s effectiveness flows from the group norms they foster, especially psychological safety.

One of the repeat readings in my class (picked by more than one guest lawyer) is True North: Discover Your Authentic Leadership, which is basically the book version of the HBR article.  It’s primary author is Bill George, former CEO of Medtronics who now teaches at Harvard Business School.  True North was picked again this year, in close proximity to Alli’s article. Thus, I took the opportunity to to better understand the book’s methodology.

Below is a graph from True North that, the authors claim, fits the pattern of many of the 125 leaders in the study.

Often, according to the authors, authentic leaders are forged during a period of extreme hardship. Through the “crucible,” leaders finally develop the courage and confidence to live by their own values.  Perhaps one way to establish a psychologically safe workplace is for the boss to explain difficult decisions in the context of their own learning, including painful failures and setbacks.  I’ve had my own crucible moments in life. At age 55, I can say that crucibles really do burn away our allegiance to things that are stupid and really don’t matter.

In terms of Box 2 change strategy, the Google research and Bill George’s authentic leadership are connected together with the work of Chris Arygris, the late, great HBS professor who focused on organizational behavior, organizational learning, and change management. In a 1991 article in the Harvard Business Review that was later republished as a HBR Classic, see “Teaching Smart People How to Learn,” Arygris discusses his work with elite management consultants. The primary theme is engrained defensive reasoning that keeps very smart professionals from learning why many of their engagements continually fall short of desired results for them and their clients.  Arygris reports many heroic efforts to change this dynamic that all end in failure.

Arygris then relates the story of a CEO of a large organizational-development firm who was so disgusted with the pattern that instead of preparing for an upcoming meeting, he decided to script out the failure in advance.  He divided his work into two columns. On the right side, he wrote out the likely dialogue that would take place.  On the left side, he wrote the thoughts and feelings that he would likely have during the meeting “but that he wouldn’t express for fear they would derail the discussion.”  Then, instead of having the meeting, he used the time to analyze the scenario with his direct reports.

What happened next was an honest dialogue in which the CEO became privy to the honest but unspoken views of his entire team. Then they could finally hear him with a new set of ears. Finally, real progress could occur.

Below is a stylized version of Aygris’s recommended approach, which I use in my Deliberative Leadership class:

This is a potentially useful Box 2 tool. Do you have the courage to give it a try?

As legal organizations and institutions struggle mightily to adapt to rapidly changing times, there is renewed and growing interest in the topic of leadership. I am confident great things are going to happen as a result.

What’s next? See Legal Services Landscape Report (058)


This is a two-part series on leadership.  For lawyers and legal educators, the big test is now.


The first time I heard “smooth seas make poor sailors” was from Fred Bartlit, one of the founding partners of Bartlit Beck.  I thought Fred was providing a guidance on how to become a great trial lawyer, i.e., through experience.  But Fred corrected me and said he was making a larger point.  Fred had been a U.S. Army Ranger and had led a platoon of soldiers in the early days of Vietnam.  He was talking about the value of perspective, emotional control, making choices with consequences, and filtering out noise. His Army experience had given Fred a very valuable general tool that could be applied to anything, including a career in law.

That conversation took place a decade ago when the legal profession and legal education were still riding high.  After the financial crisis in 2008-09, bleak job numbers and high debt loads gave rise to the scam blog movement followed by relentless negative coverage in the New York Times and Wall Street Journal.  With so much bad press and a weak entry-level job market, applications went into a free-fall. In the fall of 2012, Brian Tamanaha published Failing Law Schoolsfollowed by Steve Harper’s The Lawyer Bubble in the spring of 2013.

Law professors and law school deans were unprepared for the depth and magnitude of the change. Moreover, there was evidence that things might get worst, as lawyers were now discussing the likelihood of a permanent market shift in how law was being practiced. Through decades of prosperity and growth, we had been conditioned to believe that an endurable normal would eventually return.  But what if that wasn’t true? How would we know? Could the old guard be counted upon to make the call? If not, what then?

These questions were very much on my mind. Thus, in the fall of 2014, I convened a small, diverse group of Indiana Law alumni to discuss the topic of leadership. There was broad consensus that the legal profession/industry was entering a period of transformation and that these challenges were a microcosm of broader issues affecting our social, economic, and political institutions. I repeated the quote I heard from Bartlit and asked, “Where will the leaders come from?”

I also asked the group for their help in creating a course on leadership at Indiana Law. Everyone agreed to pitch in, but they scuttled the proposed name. “How about ‘Deliberative Leadership?,'” offered one seasoned alum who was CEO of a large company. “Before anyone agrees to lead,” he explained, “they should reflect on leadership in a deep and deliberate way.”  That seemed like advice designed to win over a group of lawyers. And it did.

You know more about leadership than you think

During the course of those meetings with alumni, I conducted an exercise that mimicked the only formal leadership training I ever had. The exercise asks two sets of questions:

  1. Identify a person who has had a major positive influence on your life. What did you learn from them? How did you learn it (e.g., through words or behaviors or some combination)?
  2. Identify a leader from your past who you decided to follow. Why did you decide to follow them? What were their sources of authority (based on job title, work experience, moral character)?

The purpose of this exercise is to surface the fact that we already possess keen insights on leadership by virtue of our life experience.  In modern times, leaders don’t have power or influence without the benefit of followers. Thus, who have we decided to follow? Invariably, the answer has a strong overlap with who has had a positive influence on our lives.

As an acknowledgement of the alumni who participated in my working group, I wrote up the results and shared it with them. See Summary of Leadership Exercise Conducted with Indiana Law Alumni, Indianapolis, IN, Oct. 23, 2014. I continue to use this exercise. And each year, I get essentially the same results.

Deliberative Leadership at Indiana Law

After I wrote up a detailed course proposal, I submitted it to the Indiana Law’s Educational Policy Committee.  On the eve the committee vote, I asked my colleague, the committee chair, if he thought the course was a good idea. He said, “Over at the business school, they have faculty who are experts on this topic.” After a slight pause that gently pointed to my lack of qualifications, my colleague commented on the thoroughness of the proposal and the customary deference given to tenured faculty. “Let’s see how it goes.”

One element of a high quality course is the quality of teaching.  A second, more subtle element is course design — i.e., how the classroom is run and the mechanisms for student learning.  In this case, I believed it was crucial to avoid the familiar role of professor as subject matter expert.  I didn’t know very much about leadership, and my students knew it.  But I had sincere curiosity and a few ideas on how to make the class work courtesy of the alumni working group and a few other resources.

Designing the course

Consulting with practicing lawyers, including former students, in your course design can be both a rewarding and humbling experience.

Perhaps the most humbling was an observation make by a former student who was the youngest member of the alumni group. She had just started a clerkship on the Indiana Supreme Court.  Prior to law school, she was a grade school teacher through Teach for America.  In reviewing my detailed course proposal, my former student remarked, “have your thought about learning objectives?”  After I wrote them up, she edited them, making them active and specific.

Another source of valuable input came from a former student who was still at the law school during his summer bar prep. Over lunch with a group of fellow grads, I explained that I was worried that students in my new class would sit back and become spectators. That very act, I said, would undermine the entire endeavor.

My former student replied, “why don’t you use a Harkness diagram.”  Having no idea what he was talking about it, he told the story of how, as a poor kid from Chicago, he ended up at the elite Phillip Exeter Academy in New Hampshire.  He also explained that most of the pedagogy at Exeter requires students to “lead the class.” The instructor’s role is to formulate the reading assignments and track the discussion as it takes place around a oval-shaped Harkness table.  Below is an example of a Harkness diagram:

In tracking the class discussion, the balance of airtime is immediately apparent. My student told me that the Exeter format had forced him into critical thinking at a very young age and that nothing in his law school experience had come close to a similar level of classroom engagement.  Suffice it to say, I adopted the method.

Students in charge

As I continued to ruminate on how to design this new leadership class, I was struck by my student’s comment that students at Exeter “lead the class.” This echoed one of the observations in the Carnegie Foundation’s Educating Lawyers report that law school stunts student development by elongating the process of passive classroom learning and delaying the act of applying the knowledge in context.

Reflecting upon these insights, I decided that a cornerstone of Deliberative Leadership would be student-led classes.  Students would be divided into five teams of four.  After the first two weeks, which I would lead (and fully exhaust my then-limited knowledge of leadership), the student teams would be in charge. Each team would be responsible for two classes. One based on readings selected by lawyers I would invite to class.  And a second based on a topic and readings selected by each team.

This course design has many benefits and very few downsides. Among the benefits is the use of crowdsourcing to identify leadership materials worthy of inclusion in class.  Thanks in substantial part to the many lawyers who have been invited to class, I have built up quite a library of articles on leadership and, much to my surprise, a handful of especially valuable resources on followership. (Gary LeClair of Post 053 was a guest in 2015. His handwritten annotations on a followership article left a big impression on students.  In 2018, an alum of the 2015 class returned and quoted LeClair: “Don’t manage your time; manage your energy.”)

A second benefit of the student-led crowdsourcing method is the opportunity to observe patterns. When the same resources get selected over multiple years, or when the same themes get drawn from disparate readings, some of the best working tools are revealed.

A third benefit is to get inside the heads of my students, who are now typically more than a quarter century my junior. Over the years, topics selected multiple times include overcoming fear (invariably one of the best classes), stress management, creativity and innovation, diversity in the profession, work-life balance, saying no, and the impact of the billable hour culture. How can I influence what I don’t understand?  When I want to learn about my students — a very powerful future demographic — all I need to do is show up and listen.

Assessment

This post is not long enough to fully explain the course’s assessment system. If you’re curious, see Deliberative Leadership syllabus.  However, there is one fairly unusual assessment method that consistently advances the course’s learning objectives.

The class meets once a week for two hours over the course of a 13-week semester.  Starting with Class 1, I circulate a half-sheet assessment rubric that is loosely based on the “hotwash” debriefing method I learned from Jeff Carr, a well-known general counsel who no shortage of opinions on leadership (albeit backed up by a track record of impressive department results). The rubric is pictured to the right [click to enlarge].

For the first two weeks, the student are grading me, albeit with useful formative feedback that I can reflect on and apply in the future. The complete feedback is collated and posted for everyone to see.  Starting in week 3, students are assessing the class organized by the student teams. This is designed to feed the “double-loop learning” method pioneered by Chris Arygris and Donald Schon.  Double-loop learning is the road to practice mastery. And, as I demonstrate to my students, it can be retooled for leadership.

It is somewhat comical and sobering to see the initial reluctance of students to read and digest feedback on how peers perceive them and others. Students are reluctant because processing feedback is difficult emotional labor. It can also be rationalized away as a “soft skill” that can be put off to a day that never comes.  Yet all day long, the perceptions of others is what determines our fate, including our fitness to lead.  Through this iterative process, I am trying to show my students that their future success is largely within their own control.  The major limitation is not intelligence, which they in abundance.  It’s a willingness to continuously observe and learn. Cf. Kiser, How Leading Lawyers Think ch. 8 (2011) (discussion of “perpetual learning,” often through feedback loops, as key to trial lawyers who consistently outperform their peers).

Call to Action speeches

The last week of class, students are required to deliver five-minute “call to action” speeches on any topic of their choosing.  The speech has to be written out in advance.  Five minutes is roughly 750 words.

This is a course requirement that almost didn’t make the cut, as some of the younger members of the alumni group voiced concern that a speech in front of peers would be a source of major student stress.  Yet, that objection was shot down by a mid-career female partner at a large law firm who remarked, “Last week, I had to give a speech to my fellow partners on the need of the firm to put substantial resources into its diversity efforts. I can tell you, I wish someone back in law school had forced me to give a call to action speech.”

In the four years I have been teaching Deliberative Leadership, one of the most startling aspects has been the evolution of each class into a community of professionals who have learned to respect and trust one another, even when they differ widely on important issues. Prior to the class, the students tend to have opinions of one another, albeit developed from a distance. But after listening to their peers over the course of 12 weeks, they learn that their fellow students are much deeper and more interesting than they ever imagined.  Thus, during the Call to Action speeches, the room is filled with energy, as students root for each other.

Although it was not my intention, Deliberative Leadership may have become one of the few law school classes where someone’s earnest pre-law personal statement can be taken out and re-read as something real, vital, and important. Occasionally I get lucky. That was the case here.

Part II

Through four years of Deliberative Leadership combined with additional life experience, I have developed a framework to aid leaders in solving very difficult problems — the kind that now confront legal education and the legal profession.  I will discuss that framework next week in Part II.

What’s next? See Studying leadership before the big test, Part II (057)