Legal Productivity Problem


Innovation hype is alienating too many practicing lawyers. This is because we forgot that lawyers innovate in the realm of substantive law.  It’s time to fix that.


Last year I was at a conference on law firm innovation organized by the Ark Group. To close things out, the event’s chairperson, Patrick McKenna, walked attendees through an insightful 30-minute flipchart session that could have been the centerpiece of the entire conference.

Above is a depiction of what McKenna drew on the first page of the flipchart (I’ll call it the McKenna Lifecycle of a Practice Area). Patrick was making the point that legal work moves along a time continuum that starts with lawyers building relatively lucrative practices by becoming experts in difficult and emerging areas of law.  Yet, at some point a substantial portion of that practice area becomes relatively mature.  Notwithstanding one’s level of mastery, the market is filled with other lawyers with a similarly deep skill set. As demand flattens and starts to decline, what was once a cutting-edge area of practice becomes a commodity.

Patrick McKenna

Patrick gave the example of synthetic biology as an emerging practice area.  As Patrick pointed out, synthetic biology raises extremely complex and novel issues of intellectual property, regulatory law and consumer safety to name but a few. In the growth area, Patrick suggested googling “virtual reality law practice” to see that lawyers from Cooley, ComputerLaw Group, and Kelley Drye have planted their flag in this important new practice area. Securities law is a good example of a practice area that has reached relative maturity — complex but sufficiently settled that portions of it can be brought in-house.  Finally, Patrick pointed to debt collection as an area that has become fully saturated and thus subject to pure commodity pricing.

I have been studying the legal market now for more than 15 years. For the last ten years or so, I’ve tried to refine the tool of just talking to lawyers about their practices. In each conversation, I’m listening for novel or recurring patterns.  In my experience, very few lawyers or law firm leaders attribute their success to catching the right practice waves. Instead, conversations almost always focus on the abilities and intellect of individual lawyers.  Perhaps this is because the waves of change in law move slowly and are hard to decipher without a lot of additional effort. As a result, we fixate on the surfer (and the surfer fixates on the surfer) and overlook the importance of the powerful waves that hurl them forward.

In this post, I’ll explain how McKenna’s Lifecycle of a Practice Area is a remarkably useful tool for delineating between two types of legal innovation: Type 0 innovation (substantive law), which is the engine that powered the rise of the world’s most successful law firms, and Type 1 innovation (service delivery), which is crucial for reigning in the problem of rising costs and complexity in a highly regulated, interconnected and globalized world.  Type 0 remains as important as ever, but clients would also like help with Type 1.


For a recent and in-depth treatment of this topic, see McKenna, “The Advent of the Legal Practice’s Micro-Niche, Part 1“, Legal Executive Institute, Oct. 14, 2018; McKenna, “The Advent of the Legal Practice’s Micro-Niche, Part 2“, Legal Executive Institute, Oct. 18, 2018.  It’s noteworthy that McKenna believes that the most important law firm strategy occurs at the practice group level.


Type 0 Innovation

As McKenna explained his diagram, I recalled numerous lunches and dinners with rainmakers who explained to me how they build their practices.  Some fit the profile of the trusted advisor — they were great listeners, excellent at identifying core issues, very practical, and excellent at delegating technical tasks to other lawyers in the firm.

But another group, who were not particularly charming or charismatic, described how a series of assignments early in their careers took them deep into the business and technical aspects of their client’s industry. Eventually they came out the other side with a series of solutions that proved to be very valuable and useful.  As a result, they got more work from their client and others with similar type problems.  These folks caught a wave in the blue or early green portion of McKenna’s lifecycle.

This is Type 0 Innovation. It happens organically when a lawyer has the opportunity to immerse herself in the business and legal complexities of a new or changing industry. Although it often produces the same economic benefits as a major R&D initiative, lawyers and law firms seldom frame it that way.  This is because clients are paying the bill, often by the hour.  It’s just legal work.  The lawyer who develops such an opportunity into a major practice is viewed as a rainmaker and is compensated accordingly.

I call this Type 0 innovation because it is common throughout the legal profession.  Virtually any lawyer has the intellectual tools to do it.  It requires zero additional training. Yet it’s undertheorized almost to the point of being invisible to practicing lawyers.

To illustrate this point, McKenna cites several years of data from law firm retreats where he has polled partners using anonymous clickers. In sessions related to the importance of business development, McKenna asks, “How many of you right now can think of something you’ve observed in your practice that could be turned into a compelling service offering for one or more of your existing clients?”  McKenna says he consistently gets scores in the 65% to 85% range. Next question, “How many of you have shared your idea with firm management?” Remarkably, scores of 25% or lower are the norm.

When asked why, partners explain that they doubt the firm or practice group will support them. Specifically, to “innovate” is to put yourself at risk of being on the wrong side of numerical targets needed to maintain one’s status in the firm. Stated another way, the partners are not sharing risk. As a result, too many partners are stuck trying to sell services in the “mature” portion of the lifecycle, often at prices that cause clients to question the value they are receiving. This is a failure of both strategy and leadership.

That said, some law firms, particularly those that are highly specialized by practice area and/or industry, understand the importance of underwriting the development of substantive law innovations.  For example, one of the attendees of Patrick’s session was Tim Mohan, Chief Executive Partner of Chapman and Cutler LLP, an AmLaw 200 law firm that specializes in financial services.  Tim later told me that Chapman had adopted a system of innovation hours whereby partners and associates could obtain credit on par with billable hours for innovation efforts likely to result in future revenues for the firm.

One area where this approach has paid large dividends is marketplace lending, which is the relatively recent development of non-bank financial institutions matching up borrowers with lenders, often by leveraging technology to evaluate and process loan requests.  Obviously, this has been tremendously disruptive to traditional banks.  Back in 2013, when this industry practice was at best an “emerging” [blue] practice area, two Chapman partners, Marc Franson and Peter Manbeck, wrote a whitepaper called “The Regulation of Marketplace Lending: A Summary of the Principal Issues.”  The first draft (the authors now keep it updated) took several hundred hours to research and write.  But once posted on the Chapman and Cutler website, it became a hotbed of download activity that has led to $10M+ in firm billings. This is pure Type 0 innovation. Far from going away, Type 0 opportunities are growing in number and importance.


Chapman and Cutler is also a shining example of Type 1 innovation.  See Post 039 (discussing the career path of Eric Wood and the founding the Chapman Practice Innovations as a successful example of law firm intrapreneurship).


Once McKenna’s Lifecycle model got into my head, I began to see Type 0 innovation all around me.  Consider the following examples:

Gary Marchant at ASU Law

Gary Marchant is a Regent’s Professor of Law and director of the Center for Law, Science and Innovation at ASU Law.  He is also on the speaker’s circuit, wowing legal audiences with novel questions of law that judges, regulators, and practicing lawyers are grappling with as a result of massive advances in science and technology, from autonomous cars to drones to cloning to global warming to digital data that captures our every move and hence of great value in determining issues of guilt or civil liability.  Several times over the last few years, I’ve had the privilege of being the same program with Gary, where he consistently knocks the ball out of the park.

Our most recent panel was earlier this month in San Francisco. Fortuitously, we shared a cab to the airport.  Thus, I got to ask Gary, “How in the world do you come up with all these examples of new and emerging issues?”  Gary replied that he teaches seven classes a year at ASU Law (e.g., Law, Science and Technology; Genetics and the Law; Biotechnology: Science, Law and Policy; Health Technologies and Innovation; Privacy, Big Data and Emerging Technologies; Environmental and Sustainability Law; and Artificial Intelligence: Law and Ethics). To scale his expertise, each is taught with a co-instructor. “But they’re all paper classes.  I read and grade 400 papers a years. All my examples come from my students.”

Gary Marchant is astonishing example of how to get the three circles of teaching, service and scholarship to overlap in near perfect unity. Kudos to the enlightened deans at ASU Law who found a way to make this work!

Carolyn Elefant at MyShingle.com

Carolyn Elefant, the clarion voice of the solo and small firm bar at My Shingle, has recently written a book called “41 Practice Areas That Didn’t Exist 15 Years Ago.”  The table of contents can be viewed online here. Elefant is renowned for being a solo practitioner who stays busy doing challenging work she loves.  So, how in the world does she have the time to identify 41 new practice areas?  Similar to Gary Marchant, Elefant skillfully leverages the time of student law clerks she regularly employs in her practice.

Carolyn compiled this list not necessarily for her own practice but to prove the point that new practice niches are growing at an accelerating rate.  As a result, any lawyer can pick an emerging area of law that is causing heartburn for some distinct population of clients and, by dint of some research and writing in an ebook format, translate that know-how into seven figures of income. This is because the community of interest passes around the ebook, building goodwill and credibility with future clients. This isn’t theory — this is Carolyn’s own experience which she learned through trial and error as she created a landowner rights practice.  See “Seven Figure Ebook,” My Shingle, Aug. 23, 2018.  She’s turn this insight into an easy-to-follow methodology for creating a lucrative and rewarding Type 0 law practice.

I know all this because I signed up for one of Carolyn’s webinars this past August — for me, it’s field research.  I greatly admire Elefant because she is passionate about helping other lawyers become successful. She reflects the legal profession at its best.

Kevin O’Keefe at LexBlog

Kevin O’Keefe is the Founder and CEO of LexBlog, which is an online publishing platform that currently hosts 1,400 law blogs, including Legal Evolution and the majority of blogs published by AmLaw 200 law firms.  Arguably, LexBlog has become the epicenter of Type 0 innovation, as the vast majority LexBlog content is focused on substantive law.  In most cases, the unit of production is either the boutique law firm or a practice group inside a major law firm.

Like Carolyn Elefant, O’Keefe spends a lot of time helping lawyers see the abundance of ripe fruit hanging less than a foot off the ground. The only catch is the modicum of effort necessary to reach down and pick it up. This is the world of content marketing, demonstrating through your writing your insights on a set of problems that afflicts some discrete universe of clients. When someone in that small universe goes online in search of relief, your content appears near the top of the Google search (the LexBlog platform aids SEO).  That content builds trust and credibility.  Although some readers will use it for pure self-help, the complex work flows disproportionately to the authors and the authors’ firm.

A good, but far from unique, example is Ballard Spahr, which puts out five publications on LexBlog:

In the year 2018, lawyers can skip the rubber chicken dinners and make rain by developing and sharing their expertise online.

Kevin O’Keefe has an infectious laugh and a life story so inspiring that every year I invite him to Indiana Law to talk with my students. Without fail, Kevin marshals example after example of young lawyers who create life-altering career opportunities for themselves by researching the legal issues around what interests them.  Step 1 is to find the online legal experts. Step 2 is to read their content and the materials they point to.  Step 3 is to contribute to the conversation via social media.  That’s right, to get off the ground, cutting-edge Type 0 innovation often leverages a twitter account.


Type 1 Innovation

I hope it’s obvious to readers that the vast majority of Legal Evolution content is focused on Type 1 innovation — i.e., service delivery improvements (data, process, technology, etc.) that chips away at the problem of lagging legal productivity.  For example:

  • Post 001 (lagging legal productivity negatively impacting entire profession)
  • Post 006 (discussing impact on legal education and courts)
  • Post 009 (importance of ODR to solve bottleneck in courts)
  • Post 019 (legal productivity is a “last mile” problem that requires new business models)
  • Post 022 (CLOC is response to lagging legal productivity problem affecting large corporations)
  • Post 036 (discussing dire statistics because of productivity problem in PeopleLaw sector)
  • Post 042 (consumers are coping with higher costs by foregoing legal services)
  • Post 048 (framework to see differential impact on people versus organizations)
  • Post 058 (Landscape report for Cal Bar that emphasized the problem of lagging legal productivity)

Yet, as important as this topic is to the future of the legal profession, it is near impossible to get lawyers to go on this journey when innovation hype ignores or denigrates the innovations routinely occuring at the practice group level.  I hope the Type 0 / Type 1 framework can start to mend this riff.

Definitions

Lawyers value definitions.  I would proposed the following as a starting point:

  • Type 0 innovation.  Adapting law to fit changing social, political, economic and technological conditions.
  • Type 1 innovation. Improving the quality, cost and delivery of existing legal solutions.

[click to enlarge]
We can plot these innovation types on McKenna’s Lifecycle of a Practice Area, with Type 0 (emerging, growth) being in the wheelhouse of skilled artisan lawyers and Type 1 (growth, mature, saturated) being the foundation of one-to-many legal solutions and thus requiring the collaboration of lawyers and multidisciplinary professionals.

Isn’t it obvious that Type 0 and Type 1 innovation are both distinct and interdependent? Further, isn’t it obvious that the legal profession’s tool box needs to include both types of innovation, albeit with lawyers and legal professionals tending to specialize in one or the other but retaining the ability to effectively collaborative across the two types?

Additional Frameworks

As I’ve reflected on Type 0 / Type 1 innovations, I’ve snapped them on to other frameworks.  Below are two examples based on other Legal Evolution posts:

The T-Shaped Legal Professionals graphic (above left) has been discussed in Posts 043 and 048.  Type 0 innovation is enabled by the traditional law school curriculum. If you’re reading the news in the year 2018, it’s obvious that Type 0 innovation is crucial to the functioning of an open society based on the rule of law.  Yet, to address the problem of lagging legal productivity, legal professionals needs a bigger toolbox that includes the ability to collaborate effectively across multiple disciplines. Type 1 innovation is enabled by the disciplines at the top of the “T”.  Solutions to crucial PeopleLaw/Access to Justice issues require quantum leaps in Type 1 innovation. There’s literally no time to waste.  This is why so many of us are working tirelessly to stand up the Institute for the Future of Law Practice (IFLP, or “I-flip”).

Likewise, variations of the Traverse the Pyramid Strategy (above right) have been discussed in Post 010 (the rise of managed services) and Post 055 (law firm strategy that combines substantive lawyering with data, process, and technology). It’s foolish for legal services to migrate away from the pyramid model, as Type 0 innovation is built on the foundation of “mature” law in the operational and commoditized space. It’s also the type of work that law firms have historically used to train junior lawyers. Less than 15 years ago, the process usually began with banker boxes filled with documents as part of the discovery or due diligence process.  Likewise, legal operations and the P3 disciplines (pricing, project management, process improvement) all exist within the Type 1 innovation vertical — though more prices sensitive, it reflects the bulk paid legal work.  Thus, we need to retool the traditional law firm talent model so that it can flex in the direction of both Type 0 and Type 1 innovation. This is yet another challenge that is being taken up by IFLP.

Conclusion

Neither Type 0 nor Type 1 innovation are easy or costless.  Both require continuous learning and an investment of time and resources without a guaranteed financial return.  Yet both add immense value to clients and form the basis for challenging and rewarding careers.  Thus, for both lawyers and legal professionals, the future is bright.

What’s next?  See PartnerVine and Last Miler’s Club (072)

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)

When lawyers come together to discuss the future — in law firms, law schools, bar associations, etc — the conversation inevitably turns to clients.  Although this is a wonderful and redeeming impulse, it almost always results in confusing and unsatisfying dialogue that goes nowhere. Why does this happen? Because lawyers focus on their detailed knowledge of trees and lack awareness and humility regarding the full breadth of the forest.

The tool pictured above is a 2×2 matrix of the US legal market. Its purpose is to decode lawyer over-generalizations about clients.

  • The horizontal axis is client type (a typology presented in Post 005).  Clients range from individuals (Type 1) to Fortune 100 clients with large legal departments (Type 6).
  • The vertical axis is adopter type based on the Rogers Diffusion Curve (presented in Post 007). Roughly 1/6 of the market falls into the innovator/early adopter categories.

The colored rectangular area reflects the universe of legal clients.  Orange denotes one-to-one consultative legal services (aka traditional legal services); dark blue signals that at least some one-to-many legal solutions are taking hold.  See Susskind, The End of Lawyers? (2010) (introducing one-to-one and one-to-many terminology). The light blue border represents clients who have innovation awareness — i.e., they know such innovations exist and are evaluating adoption. See Post 008 (discussing time gap between “knowledge awareness” and “adoption decision”). I have done my best to make each area unit roughly equivalent in dollars and adopter-type percentage.

In the above graphic, the vast majority of the US legal market is orange. This means most legal problems get solved by clients consulting with lawyers and lawyers fashioning a custom solution. This is the methodology we teach in law school.  It is also the paradigm for Model Rules of Professional Conduct.

Blue will grow, Orange will shrink

Regardless of the current breakdown, the dark blue is destined to grow and the orange is destined to shrink.  There is nothing controversial about this statement. See Post 001 (discussing legal productivity problem for individual and organizational clients).

What’s uncertain, however, is the pace of change.  If you’re running a law school or law firm, or investing in NewLaw or legaltech, your success or failure depends upon your timing.  This is pure business risk, which drives lawyers nuts. Fortunately, diffusion theory provides some insight.

Type 1-3 clients (left side)

More than 50% of the dark blue is clustered in the top-left of the graphic (the personal services portion of market).  Also, there is a vertical line that delineate Type 1-3 clients from Types 4-6. Clients to the left of the line (individuals, business owners, and companies with a solo GC) have relatively simple adoption decisions — one person decides based upon personal factors. See Post 008 (discussing how rate of adoption varies by decision type).

For Type 1 and 2 clients, the most prominent example of a one-to-many solution is LegalZoom.  Many customers became aware of LegalZoom through mass advertising on NPR, commercials during Shark Tank and Law & Order, or internet banner ads. In fact, since January, I have come across 33 different LegalZoom banner ads (Google has me pegged). Lawyers and law professors may snicker at the lack of perfection in a LegalZoom form, but there is zero doubt this company understands lifetime customer value better than anyone else in the legal market. LegalZoom’s influence is growing like an oak.

The solo and small firm bar has other sources of one-to-many solutions, including sophisticated document management and automation systems. In most cases, the goal is to enable high-volume practice. Indeed, legaltech started over 30 years ago when solo and small firm lawyers sought out better ways to solve the legal problems of ordinary people.


Side note: Although legaltech has been a tremendous help to the clients of solo and small firms, the biggest bottleneck to access to justice is a labor-intensive adversarial system. See, e.g., Post 042 (cost of litigation outpacing amounts in controversy); Post 037 (PeopleLaw sector is unraveling). We need a redesign of how we resolve disputes.


Finally, why is there no dark blue underneath Type 3 clients (i.e., companies with one in-house lawyer)? Type 3 clients generally have problems too complex for a kiosk service like LegalZoom, yet their budgets are relatively small and their numbers too few to create a scalable market. As a result, Type 3 clients are destined to wait the longest for one-to-many solutions.

Type 4-6 clients (right side)

On the right side of the graphic is a second dark blue cluster. This is mostly Type 5 and 6 clients investing in legal operations.  If you attended the 2018 CLOC Institute in Las Vegas last month, you witnessed a stunning number of companies offering one-to-many legal solutions. The conference had nearly 2,300 attendees, with more than 2/3 drawn from the vendor side.

Remarkably, despite this impressive showing, we remain in the early days of legal department innovation. During the opening session, CLOC’s CEO Connie Brenton acknowledged that 1/3 of the Fortune 500 was present, leaving 2/3 as future members. Further, a substantial subset of corporate legal department attendees were there to learn how to do the basics of data, process, and technology.  A handful of companies have emerged as legal ops innovators, such as Cisco, Adobe, HP, NetApp, Google, ADM, and DCX, with substantial horsepower coming from leading NewLaw vendors like Elevate and UnitedLex. We are barely scratching the surface of future change. The potential is staggering.

That said, Type 4-6 clients are heavily constrained by the adoption decision process.  Unlike Type 1-3 clients, where one person makes the buy decision, legal departments have to be much more deliberate. In theory, the general counsel presides over the budget and has the authority to spend it.  Yet, GCs have many items on their plate. Therefore, decisions regarding legal department systems are often delegated to a lieutenant. Because systems are not part of a lawyer’s formal training, the lieutenant has to climb a learning curve. Once an adoption decision is made, successful implementation will likely require major investments in change management. Cf. Post 008 (discussing prevalence of “massive passive resistant (MPR)” in corporate legal departments); Post 047 (emphasizing need for strong leadership to successfully implement law firm scorecards). This can strain the relationship between the deputy and GC.

It is indisputably true that there is growing pressure on legal departments to do more with less. This is why CLOC membership has doubled year-over-year since 2015.  Yet, because of decision-making and implementation challenges, the pace of transformative change remains uncertain.

Confusing conversations — an illustration

Let’s imagine we attend a law school alumni event and the dean asks for advice on how to prepare students for the future practice of law.  The graphic below reflects some of the perspectives in the room. All of them are based on experiences with clients.

Lawyer A has a very optimistic story to tell, as he has implemented sophisticated workflow, project management, and document automation solutions to more efficiently and profitably serve his PeopleLaw clientele.  This describes the practice of my former student, Jordan Couch, who practices at Palace Law in the Seattle-Tacoma metro area.  Go Jordan!

Lawyer B serves an older and more affluent PeopleLaw-small business clientele.  She plays attention to legaltech developments but, as yet, does not feel a need to substantially change her practice.

Lawyer C is older than A and B and practices in the corporate middle market.  He has little idea what Jordan is talking about and assures the dean and the faculty that law remains a noble profession.

Several lawyers from Law Firm D are at the gathering, including a young partner enthused about her use of AI to better serve an innovative and cost-sensitive client. “Through tech, we’ll spend less time on scut work and more time practicing at the top of our license.” An older partner from Law Firm D thinks this is errant nonsense.  His clients are overwhelmingly late majority. He knows nothing about diffusion theory and seldom reads books. Finally, Law Firm D’s beleaguered managing partner is also an alum. He is struggling to navigate the disparate views of his partners. He tells the dean to prepare students “for a lifetime of change,” though he provides no specifics.

Finally, the richest lawyers in attendance work at Law Firm E, a white shoe NYC firm focused on financial services. None of the lawyers from Law Firm E have ever heard of CLOC. Some junior associates, however, are intrigued by the idea of automating all work that keeps them at the office past 2 am.

Creating T-shaped legal professionals

Law faculty attending the alumni event have a wonderful opportunity to hear what they want to hear.  That is unfortunate.

When it comes to dark blue one-to-many versus orange one-to-one, legal education needs to see the forest from the trees.  This means embracing the concept of T-shaped legal professions.  See Post 043 (discussing the Institute for the Future of Law Practice).  When the content and quality of one’s legal education enables a law grad to pack dramatically more value into an hour of work, everyone wins — clients, law schools, alumni, the organized bar, and broader society.  Our job is to survey, evaluate, recommend, and adapt, not to wait around for the guidance of lawyers immersed in practice.

I hope my decoding tool helps the cause.

What’s next? See Legal Evolution graphics, Year 1 (049)

The price of legal services is increasing faster than the CPI’s basket of goods and services.  Perhaps that is not surprising to those of us working in the legal sector. However, legal services are also losing wallet share.  In 1987, legal services made up 0.435% of the CPI-U basket.  By December 2016, the proportion was 0.245%.

This second trend is telling us something important about the future of law practice, particularly in the PeopleLaw sector.

This post breaks the analysis into three strands. Section 1 presents the CPI data, including technical information on the CPI sampling and weighting methodologies. Section 2 offers some possible explanations for why wallet share for legal services is trending downward.  Section 3 uses CPI data to compare legal services with cost and wallet share of college tuition and medical care.  (Preview: costs in the meds and eds sectors are outpacing the CPI-U, yet their wallet share is growing.)

1. CPI and “Relative Importance” within the CPI Basket

The chart below presents the relevant CPI data for legal services.  

In interpreting this graph, note two vertical axes. The green axis (left side) is the CPI-U with the base year set to 1986 (Index = 100).  Over the last 30 years, the green and grey bars show the cost of legal services rising nearly twice as fast as the overall CPI-U basket (334.5 versus 218.5).

The orange axis (right side) measures the “relative importance” of legal services within the CPI basket. The  orange trendline shows this statistic over time.  Basically, as the relative prices of goods and services change, consumers adjust how they allocate their money. The BLS tracks these changes through the Consumer Expenditure Survey. Through detailed interviews and spending diaries conducted twice a year from a representative sample of urban households (89% of the US population qualifies as urban), the BLS measures recent consumer behavior and re-weights the composition of the CPI-U basket.

In the chart above, you’ll note a sudden drop in 1997 in the relative importance of legal services (from 0.480% to 0.329% of consumer spending). This drop occurred because the BLS re-weighted the CPI basket for the first time in several years.  Since the mid-2000s, however, the BLS has re-weighted the CPI based on two-year rolling averages. Thus, the relative importance data for 2015 and 2016 are calculated based upon spending patterns from 2013 and 2014. See Relative Importance of components in the Consumer Price Indexes, Dec. 2016. When 2017 data are released, it will likely be based on weights from 2015-16.

Finally, note that the CPI data on legal services is limited to consumer spending. This is the PeopleLaw sector, which other data sources show is on the decline. See, e.g., Post 037 (between 2007 and 2012, individual consumer spending on legal services declined from $65.5 billion to $58.8 billion).  In the chart above, none (or very little) of the data reflect spending by organizational clients.

I share this technical information on the CPI so that readers have the full context for following troubling claim:  As the cost of legal services goes up, average Americans are finding ways to forego legal services. This is likely a major factor for the shrinking of the PeopleLaw sector, see Post 037, and an under-discussed factor in flagging law school enrollments, see Post 006. Many prospective students are drawn to law as a way to help people.  Yet, lawyers working in PeopleLaw are probably telling prospective law students, “It’s getting harder to earn a living.” See Post 037 (discussing results of 2017 Clio Report).

2. Why is the relative importance of legal services trending downward?

Unfortunately, we lack the data to answer this question with precision.  Below I offer two plausible contributing factors

a. The DIY law movement

One factor that might partially account for the decline in PeopleLaw legal expenditures is the rise of the DIY (do-it-yourself) law movement.  The online form-driven products may be an attractive substitute for an office visit to a local small firm practitioner. For a summary of these offerings, see We Rock Your Web review of The Best Online Legal Services.  It is worth noting that many of these offerings have an A+ rating from the Better Business Bureau).

Yet, the DIY companies are not a complete substitute for all legal needs.  We know this to be true because so many of the DIY companies are building out networks of vetted lawyers who can handle the large volume of legal work that cannot be handled by a simple form.

The most successful of these companies, LegalZoom, has positioned itself as publishing-technology-marketing company that throws off legal work to a network of independent law offices.  To protect and grow its brand, LegalZoom carefully monitors the client satisfaction figures of its referrals.  Cultivating and channeling the legal needs of consumers, and thereafter monitoring client satisfaction, is not the practice of law. However, it is a set of services that can potentially benefit both lawyers and the individual clients they serve.

b. Fewer state court filings

A second possible explanation for legal services’ decline in relative importance is waning value of state courts in resolving disputes. This trend line would occur when the cost of a lawsuit, including the need to retain a lawyer, becomes too expensive relative to the underlying problem or dispute.

In Post 006 and 037, I discussed the disturbing statistics in the NCSC’s Landscape of Civil Litigation in State Courts Report, which was published in 2015. Drawing upon 925,000 cases disposed of between July 2012 and June 2013 in ten large urban counties, the NCSC researchers identified 228,000 cases that resulted in a non-zero monetary judgment.  The median judgment amount was a mere $2,441 — hardly an amount that can support the cost of hiring a lawyer. Further, only 24 percent of cases had the benefit of attorney representation on both sides of the dispute.  Stated in the alternative, 3/4 of cases involved a party going it alone without a lawyer.

If things are as bad in large urban state courts as the NCSC suggests, it is likely that the volume of state court filings is on significant downward trajectory. The reason is simple — lawyers won’t file cases where they know, upfront, that they can’t recoup the value of their time.  Further, going to court without a lawyer is a daunting prospect most citizens would prefer to avoid.  Thus, the lower the case values, the fewer the case filings and the higher the volume of default judgments.

An insider in the Illinois court system tipped me off that state court filings were indeed trending downward.  To duration and magnitude of the change, all I needed to do was pull figures published from in Annual Report on the Illinois Courts, which are published online.

Illinois is a good sample because it is a “single tier” jurisdiction that handles every type of civil (and criminal) matter in the state, including small claims. Also, Cook County Circuit Court (encompassing Chicago) was one of the ten jurisdictions included the NSCS Landscape Report.

Below are the number of civil case filings in the Illinois courts from 1997 to 2016.

Since 2009, the number of civil filings (which includes all cases for monetary damages, real property disputes, review of administrative bodies, and proceedings related to probate, eminent domain, mental health, and municipal taxes) has tumbled from 791,000 to 430,000, a drop of 45.7 percent.  It is possible that the peak years (2009 and 2010) were driven foreclosure actions related to the financial crisis.  However, over the last 20 years, civil filings have declined from 634,000 to 430,000 (-32.2 percent).  Yet, the Illinois state population grew from 11.9 to 12.8 million people.

According to a recent report by the Illinois Supreme Court Commission on Access to Justice, “In 2015, 93 of Illinois’ 102 counties reported that more than 50% of civil cases involved a self-represented litigant on at least one side. In some case types, that number rose as high as 80%.”

Now let me boil is down:  At least in Illinois, which I doubt is an outlier, civil state court filings are the decline; and among those that are being filed, a large and growing proportion involve self-represented litigants.  In other words, the entire state-run judicial system appears to be breaking down, in part because the system is predicated on the assumption that all parties are represented by counsel, an assumption that increasingly does not hold.

Faced with a similar challenge, the province of British Columbia in Canada created a new Civil Resolution Tribunal (CRT), which implements mandatory Online Dispute Resolution (ODR) for low-stakes disputes (defined as $5,000 or less plus all condominium-related controversies).  The CRT is designed to be a consumer-friendly online process that operates without lawyers. See, e.g., B.C.’s trailblazing digital justice delivering, Vancouver Sun, Jan. 4, 2018. The UK is poised for a similar move. See, Online dispute resolution creates ‘exciting’ opportunity for change, says new report, Out-Law.com, Oct. 25, 2017.

3. “Cost disease” in the meds, eds, and legal sectors

I became interested in the CPI index for legal services when reading a book on “cost disease” by noted labor economist William Baumol.  See William J. Baumol, The Cost Disease: Why Computers Get Cheaper and Health Care Doesn’t (Yale 2013).

What is cost disease?  Basically, large productivity gains in some sectors (e.g., manufacturing, technology, agriculture) can have the effect of increasing the relative prices in other less productive sectors. This is particularly true for sectors that rely heavily on the labor of highly educated knowledge workers.

Baumol first identified this relationship when studying the economics of the performing arts. Baumol and his co-author William Bowen acknowledged that human ingenuity has devised many ways to reduce the labor necessary to produce industrial wares, yet “no one has succeeded in decreasing the human effort expended at a live performance of a 45 minute Schubert quartet much below a total of 3-man hours.” See Baumol & Bowen, Performing Arts, the Economic Dilemma 164 (MIT 1966). Despite the immovability of the musicians’ productivity, musicians’ wages went up with the rest of the workforce.

Within the economics literature, the industries most associated with cost disease are medical care and higher education. But, as Baumol points out,  other “personal service” sectors are also highly susceptive to cost disease. Examples include legal services, K-12 education, local police and fire (basically, most of government), and many others.  Cost disease is a serious policy issue because (a) goods and services like medical care and higher education are perceived as integral to our quality of life, and (b) when their costs rise much faster than the CPI-U (i.e., “cost of living”), it generates much political handwringing.

The graph below compares the CPI-U to the consumer price of three sectors prone to cost disease: medical care, college tuition, and legal services.

The consumer cost of legal services is roughly on par with medical care but significantly less than college tuition.  Yet, as shown in the table below, when it comes to wallet share, both medical care and college tuition are growing in relative importance within the CPI basket of goods and services.

Relative importance in CPI-U
CPI component 1987 2016 Change over time
Legal Services 0.435% 0.245% -43.7%
Medical Care 4.807% 8.539% +77.6%
College Tuition 0.840% 1.807% +120.3%

The large decline in relative importance for legal services suggests price elasticity — as the price goes up, consumer demand goes down.  In contrast, the relative importance of medical care and college tuition suggest price inelasticity — as the price goes up, consumers find a way to pay more.

It is worth noting that in the CPI-U tracks only consumer spending patterns. Americans are spending a larger proportion of their household income on medical care and college tuition.  However, medical care and college tuition are also finances by other parts of the modern economy.  In the case of medical care, this comes through employer-provided health insurance, Medicare, and Medicaid. Likewise, Department of Education student loans enable borrowers to effectively defer the cost of college tuition until after graduation.  Thus, the table above reflects only the costs paid out of current household income.

Yet, different consumer attitudes toward medical care versus legal services arguably have a dramatic impact on the willingness of young people to enter these two professions.  Below is a chart that compares applicants to law school versus medical schools.

Conclusion

Since Post 001 of Legal Evolution, I have harped on the topic of “lagging legal productivity.”  The above analysis shows that if legal services cannot be delivered more efficiently, ordinary citizens will forgo legal services.  This is not a prediction; it is a statement of what is happening today.  State courts are glutted with self-represented litigants. At the same time, lawyers struggle to find clients who can support their practice.

The problem is not the necessarily the escalating cost of a lawyer’s time ($260/hr in the most recent CLIO survey, see Post 037), but our failure to update our institutions so that ordinary citizens can resolve their legal problems in a convenient and cost-effective way.  In other words, it’s time to redesign some of our most hallowed institutions.  This is the challenge of the next generation of lawyers, judges, and legal educators.

The graphic above tells a simple, painful, and important story about the U.S. legal profession that we can’t afford to ignore.  The graphic compares the receipts of U.S. law firms in 2007 and 2012 based on “class of customer” data from the Economic Census, the U.S. Census Bureau’s official five-year measure of American business.  Although total law firm receipts increased from $225 billion to $246 billion, receipts from individuals declined by almost $7 billion. That’s a staggering sum.

Ordinarily, with such a large and sudden drop (10.2%), I worry about data quality.  Yet, these data appear to be continuations of trend lines that are several decades old.  Further, recent data published by Clio, the cloud-based practice management and time-keeping system used by a large number of solo and small firm lawyers, reveal that the economics of small firm practice are under severe stress.

As a society and a profession, we are heading to a place that none of us wants to go. Our biggest risk factor is failing to acknowledge the full magnitude of the problem.

The two hemispheres of practice

The structural significance of lawyers’ clientele — individuals versus organizations — was first noted by Jack Heinz and Edward Laumann in Chicago Lawyers: The Social Structure of the Bar (1982) (popularly known as Chicago Lawyers I).

Based on a randomized sample of 800 Chicago lawyers, Heinz and Laumann observed that lawyers tend to serve either individuals or organizations, but seldom both.  Further, type of client was strongly correlated with lawyer income, ethnicity, religious background, law school attended, home address, work address, and bar association membership.  “Only in the most formal senses, then, do the two types of lawyers constitute one profession” (p. 384).  This was the basis for their famous two-hemisphere theory of the legal profession. See also Deborah J. Merritt, Two Hemispheres, Law School Cafe, May 2, 2015.

Twenty years later, Heinz, Laumann and other researchers replicated the study based on a sample drawn in 1995.  See Heinz et al., Urban Lawyers: The New Structure of the Bar (2005) (Chicago Lawyers II).  One of their key findings was a dramatic surge of prosperity within the organizational sphere, with real incomes of large firm lawyers and in-house counsel nearly doubling.  Conversely, among solo practitioners, who disproportionately served individual clients, incomes fell from $99,159 (in 1995 dollars) to $55,000. By 1995, 32% of solo practitioners were working a second job compared to only 2% in 1975.

These are startling and sober statistics generated by careful social scientists. These findings are also 23 years old.

From stagnation to decline

The Chicago Lawyers I and II studies reveal stagnation taking hold within the PeopleLaw sector. Yet, more recently, we’ve moved beyond stagnation to a period of actual decline.  I do not use these words lightly. Yet this is the picture that emerges when the graphic above, which reflects U.S. Census Bureau data from 2007 and 2012, is combined with findings from Clio’s 2017 Legal Trends Report.

Clio is a cloud-based practice management and time-keeping system that has obtained enormous traction with solo and small firm lawyers. The 2017 Legal Trends Report is based on anonymized 2016 data from more than 60,000 U.S. timekeepers.

  • The total sample covers 1,026,000 matters, 10,981,000 hours, and $2.6 billion in billings.
  • Approximately 84% of matters are billed by the hour.
  • The average hourly rate for a lawyer is $260.
  • The average matter garnered slightly less than $2,500 in fees, with traffic offenses the lowest average (~$700) and personal injury the highest (~$3,300).

Yet, what is most striking about the Clio Report is that the average lawyer is billing only 2.3 hours per day.  Of that total, 82% is actually invoiced to the client; and only 86% of invoiced fees are collected. This translates into $422/day per lawyer ($260 x 2.6 x 82% x 86%), or $105,000 in gross receipts over a 50-week year. This is a sum that needs to cover office overhead, healthcare, retirement, malpractice insurance, marketing, and taxes, etc.  And note, these are averages, not the bottom decile or quartile. Further, these are lawyers at firms that have invested in practice management software.

Of the remaining 6 hours in the workday, lawyers are spending 48% of their time on administrative tasks (e.g., generating bills, configuring technology, client collections) and 33% on business development.  The report notes that lawyers spend roughly the same amount of time looking for legal work as they do performing legal work (p. 13).

The danger of not saying the obvious

In Post 006, I reported on statistics from The Landscape of Civil Litigation in State Courts report published by the National Center for State Courts (NCSC). The most startling statistic among many is that 76% of cases involve at least one party who is self-represented. The Report frankly states:

The picture of civil litigation that emerges from the Landscape dataset confirms the longstanding criticism that the civil justice system takes too long and costs too much.  As a result, many litigants with meritorious claims and defenses are effectively denied access to justice in state courts because it is not economically feasible to litigate those cases (p. v).

These are not the conclusions of a fringe group. The NCSC’s research agenda is set in collaboration with the Conference of Chief Justices and the Conference of State Court Administrators. This is the body formed at the urging of Chief Justice Warren Burger.

I’ll now state an obvious truth:  Our legal system as it pertains to ordinary people is unraveling.  Hundreds of millions of people can’t afford to hire a lawyer to solve their legal problems. As a result, they go it alone or give up altogether.  In turn, as the PeopleLaw sector shrinks, a large number of lawyers are under tremendous economic stress.  No amount of tinkering at the edges is going to fix or reverse these trends. Instead, we need a series of fundamental redesigns.

This needs to be said clearly and emphatically. This is because the collective and societal solution to the declining PeopleLaw sector is not for lawyers and legal education to pivot toward corporate clients who can still pay the freight, though this is undoubtedly the direction of drift if we fail to forcefully acknowledge the woeful imbalance of our current legal system.

Redesign or failure

As a law professor, I support innovations that make legal problem-solving more cost-effective.  Indeed, that is the purpose of Legal Evolution. See Post 001 (discussing the problem and consequences of lagging legal productivity).  In the segment of the bar that serves corporations, there is tremendous momentum building to make this happen, primarily because corporations feel an urgency to find cost-effective ways to manage the relentless rising tide of legal complexity.  This is what is driving the legal operations movement. Yet, I’m confidence that very few lawyers want to live in a society where corporate efficiency has become our primary goal. There has to be something more.

As Gillian Hadfield wrote in her recent book, Rules for a Flat World (2017), “People who feel as though the rules don’t care about them don’t care about the rules” (p. 79). The withering of the PeopleLaw sector is moving us closer to a place we don’t want to go.  We have entered a period where we are either going to redesign our legal institutions or they will fail. It’s time for lawyers and legal educators to find creative ways to restore the balance. Step one is acknowledging the magnitude of the problem.

What’s next?  See Student Capstone Presentations: Visitors Welcome (038)

The graphic above is a breakdown of the 76 sessions at the 2017 CLOC Institute. Since there were seven concurrent tracks, it was impossible to attend more than a small fraction of the total programs.  Nonetheless, if one wants to understand the mindset and priorities of corporate legal departments, there is hardly a better window than a careful review of the various problems that the CLOC sessions are trying to solve.

The sessions are grouped into eleven subject matter categories (HT to research assistant Seth Saler for his help).  The numbers inside each unit reflect specific sessions (session titles can be accessed here). Below is a brief discussion of the content of the top categories.

Inside the Client’s Head

The biggest category is Legal Department Design, which suggests that the top priority of legal ops professionals is designing, building, and upgrading the legal department of the future.  It is both high-level and strategic in orientation.  Topics in this category include legal department budgeting, KPIs, using metrics to calculate ROI, data analytics, workflow design, and building and deploying internal dashboards. A common theme in all of this is doing more with less.

Continuing this theme, the second biggest category is Outside Counsel Management.  This includes convergence, AFAs, e-billing systems, legal project management, applied technology, outside counsel guidelines, rate evaluations and benchmarking [internal methodologies and tools, not sharing of industry data], litigation budgeting, outside counsel selection, client/law firm collaboration, using metrics to drive alignment, and law firm scorecards and evaluation. At most law firms, strategic planning takes the form of annual revenue targets by practice group. Judging from the CLOC sessions, it’s going to take some innovative thinking to get greater wallet share from these clients.

Professional Development and Tools & Technology tie for the third biggest category, with nine sessions each. Professional Development focuses on personality assessments (overview plus an applied workshop), improving teamwork and collaboration, workplace generational shifts, and networking. Tools & Technology includes technology platform selection, workflow automation, data security, technology roadmaps, how to create dashboards, and process design.

Note that Artificial Intelligence in its various forms appears in several session titles, but always as part of specific use cases. At least at CLOC, AI is no longer an introductory, freestanding topic.

The Professionalization Project

One relatively large category that I was not expecting to create was Legal Ops Professionalization. Instead, it emerged from the data.  The six sessions in this group focus on legal ops core competencies [click on CLOC figure to the right to enlarge], creating a legal ops function in your company, review of the legal operations maturity model {detailed multi-level model created by CLOC members], and salary negotiations for legal ops professionals.  Session title 62 says it all: “Control Your Destiny: How to Assess and Develop Your Legal Ops Skills.”

History is replete with examples of workers coming together to “professionalize” their craft through the creation of a common language and set of standards. This same process is now fully in motion in the emerging field of legal operations.  Although still a few years away, it will eventually culminate in a system of credentials and certifications to help the market identify and allocate legal operations talent. Such a system helps organizations hire the right person for a very important, high-stakes role.  As a second order effect, it also helps legal ops professionals increase their economic power and influence.

It is my view that legal ops is not, strictly speaking, a career path within legal departments.  Instead, legal operations is field that focuses on systems and controls for managing legal problems and complexity.  Under this broader definition, there are legal ops professionals inside progressive law firms, see Post 021 (categorizing law firms based on innovations in people, process, and technology), and legal managed service providers, see Post 010 (noting how managed service model requires “remarkably tight systems for project management and process improvement”). Although buyers and suppliers of legal inputs will always have slightly different perspectives, their underlying knowledge and skills are on a convergence path.

We are still very much in the early days of the legal operations movement.  This is a key part of solving the lagging legal productivity problem.  See What is Legal Evolution? (001) (discussing importance of solving lagging legal productivity); see also Six Types of Law Firm Clients (005) (discussing rise of CLOC).

What’s next? See Public Event: Soft Skills for the Effective Lawyer (023)

If we categorize all of our business conversations into the above four buckets, which bucket is the fullest?

Unfortunately, I vote for bucket 4.  We end up in bucket 4 because we want to be perceived as being fully informed.  Yet, being fully informed takes a lot of solitary, uncompensated effort with no certain prospect of a return.  So in our business conversations with one another, we fudge how much we really know.  First to ourselves and then to others.

Everyone likely agrees that bucket 1 is where we need to be.  Yet bucket 1 is the endpoint.  We start in bucket 2 with something like this opening line:  “Our business relationship is not working as well as it should because we are not making decisions from a solid foundation of shared facts. I would very much like to change this.”  If we’re selective on how and where we begin the conversation, we have good odds at a substantive, ongoing dialogue about information gaps and how to jointly fill them.

During the spring and early summer, I wrote two pieces for Law.com that focused on the legal profession’s Last Mile Problem and Last Mile Solution. They presented examples of unproductive dialogue between clients and lawyers.  The unproductive conversations are no one’s fault, yet they are real and pervasive.  These two articles are now combine in a single PDF.  Below is a copy of a “Last Mile” slide deck that contains all the figures in the articles. Hopefully, a few innovators and early adopters use these materials for a “bucket 2” dialogue.  bucket 2 + time = bucket 1.

What’s next?  See Change Agents and Opinion Leaders (020)

modriatylertechEarlier this week, Modria (mentioned in Post 008) was acquired by Tyler Technologies, a publicly traded company that specializes in information management solutions to local governments. See press release.  Tyler Technology is headquartered in Plano, Texas and has 3,800 employees. It’s total 2016 revenues were $776 million. See 2016 Annual Report. Modria’s founders, management team, and employees will all join Tyler Technology.  Per the press release, they will help build out Tyler’s “portfolio of courts and justice solutions, particularly for its Odyssey File & Serve™ solution.”

The sale price of Modria was not disclosed. Although I suspect that Modria netted a decent return for its investors, I think the financial details are a lot less significant than what the acquisition means for the future of state and local courts.

For readers unfamiliar with Modria, here is the essential background. Modria is an online dispute resolution (ODR) company founded by the technologists who created eBay’s and PayPal’s ODR systems.  In these early days, ODR has been targeted at disputes where the amount at stake cannot support attorneys’ fees, court costs, or travel.  A credible, trustworthy, and efficient ODR is valued by customers.  It can also reduce the number and vitriol of negative online reviews. Thus, it is no surprise that merchants are willing to pay a company for an ODR solution (at roughly $4.50 per dispute).

Yet, the acquisition by Tyler Technologies suggests that the solutions that Modria has pioneered is likely to have use cases further up the food chain.  One of the problems that Tyler Technologies is trying to solve for small governments is cost-effective handling of disputes that involve self-represented litigants. Cf. Post 006 (presenting statistics in a National Conference of State Court report where 75% of cases involve a party not represented by a lawyer).

Modria was likely an attractive buy for Tyler Technologies because Modria was already white-labeling a dispute resolution system for property tax appeals for hundreds of municipalities. Through Modria, the municipalities shed the cost of running a tax appeals venue. At the same time, citizens were also happier with the speed and resolution of the appeals, and the municipalities fared better in total tax receipts.  Note that Tyler Technologies has 15,000 local government clients — that is an ideal sales channel for Modria’s ODR products.

In Tomorrow’s Lawyers, Richard asks the question, “Is court a service or a place?” Lawyers conceptualize it as place.  Yet Tyler Technology is likely betting it is a service that can be outsourced.  I believe that is where we are headed.

Update:

Gabrielle Orum Hernández, via LegalTech News, has written an excellent story on the value of the acquisition to Tyler Technologies.

Quoting their chief strategy officer, Bruce Graham:

‘What we expect [following integration of Modria into Tyler’s Guide and File platform] is that if there’s a dispute within [Guide & File]—for example, if they’re filing for divorce, maybe there’s an issue around custody—that’ll actually kick them into Modria. …

‘I had four different chief justices come to me and say, ‘You’ve got to do something about access to justice,’ Graham said, adding that online dispute resolution often topped wish lists for court leaders.

The American Bar Associations’ (ABA) Center on Innovation is also exploring ways to leverage online technology to assist with nationwide small claims needs. ABA president-elect Hilarie Bass previously told Legaltech News that online dispute resolution tools could help courts alleviate some of the strain on clients in small claims cases.

‘Our current system requires individuals to take a day off of work, most likely take a bus or transit system across town for a pretrial conference, at which time if they can’t resolve the issue, they have to come in for a second day,’ Bass said. ‘Why can’t we do that all online?’

On Modria’s company blog, the senior management writes, “We are incredibly excited about merging Modria’s cutting-edge ODR platform with Tyler’s powerful software for the courts. This combination will create a single system capable of supporting citizens all the way through their justice journey.”

What’s next?  See World Class Innovation and Efficiency, Billed by the Hour (010)

lawgraduates006The ABA just released 10-months out employment data for the class of 2016.  The percentages of grads employed in full-time/long term Bar Passage Required and JD Advantage jobs is up (72.5% compared to 70.1% in 2015).  However, the total number of these jobs is down (28,029 to 26,923).

Is this good news for law schools?

Not really.  The employment percentage is up only because the number of law grads is dropping faster than the number of jobs. But both numbers — grads (supply) and jobs (demand) — are declining. A true recovery would show the opposite.

A 28% Drop in the Number of Law Grads

The graph above reveals a dramatic drop in the number of law grads.  The green bars reflect historical data.   The orange bars are projections for the next three years based on incoming 1L classes that have already enrolled. (Based on a 10-year historical average, 90.1% of entering 1Ls receive a JD three years later.)  Between 2013 and 2019, the size of graduating classes will drop 28.0%.

This may be the bottom of the trough, as the number of projected graduates is essentially identical for ’18 and ’19 (33,667 versus 33,658).  Yet, it would be mistake to assume that things are headed back to normal.  We have to go back to 1978 to find graduating classes this small.  At that time, the US population totaled 223 million.  Since then, we’ve added another 100 million people.

A population gain that large should translate into a lot more divorces, wills, contract disputes, DUIs, and personal injury claims, etc. And likely it has.  But it may be the case that a growing proportion of these legal problems cannot be cost-effectively solved by lawyers (more on this below).

The Old Era of Bad Employment Data

94percent2010USNAs the job market collapsed in ’08-’09, law schools came under intense pressure to provide higher quality employment data. At the time, the only metric collected by the ABA was employment 9 months after graduation. Yet, the definition of “employed” did not distinguish between jobs that were legal versus non-legal, or full-time versus part-time or temporary.  Because US News used this metric in its ranking formula, it became normal for schools to aggressively count all jobs regardless of quality.

In the 2010 US News rankings, the median employed-at-9-months figure was a remarkable 94.4%.  In contrast, NALP data published in the spring of 2010 showed only 82.0% of law grads obtaining either Bar Passage Required or JD Preferred jobs. Terms of use with member law schools prohibited NALP from reporting school level data. But obviously the numbers weren’t adding up.

As the job market continued to stagnate, law schools got hammered in the press and blogosphere for publishing unreliable, self-serving data.  Former students and alumni filed lawsuits against more than a dozen ABA accredited law schools alleging various theories of consumer fraud.  Industrious law students at Vanderbilt Law used the bully pulpit of the Internet to create Law School Transparency (LST) and demand that law schools release more granular information on employment. And eventually it worked.

The New Era of Data Transparency

The ABA Section on Legal Education and Admissions to the Bar responded to the public pressure by agreeing to collect, publish, and periodically audit granular information on employment outcomes. That information can now be readily downloaded from an online database.  Several other outlets now incorporate these data into online tools to improve decision making for prospective law students. See, e.g., Law School Transparency (LST)AccessLex Institute (Analytix), Educating Tomorrow’s Lawyers (ELT), Above the Law (ATL).

The chart below reflects employment outcomes (i.e., demand for new law graduates) since the ABA stepped into its new role as collector and disseminator of high-quality market information.

ABAjobs2011_16

The key takeaway is that the entry-level market for law grads remains very soft.   Of the six reporting years, 2016 had the fewest number of FTLT Bar Passage Required or JD Advantage jobs. The numbers look better when they are expressed as a percentage of total class size, as in the table below:

2011 2012 2013 2014 2015 2016
63.0% 65.7% 67.1% 71.1% 70.1% 72.5%

Yet this trend is moving up only because we are at a 40-year low in the number of law grads. See Green/Orange chart above.  Enrollments are down because entry-level employment for law grads is down.  That’s the impact of the new era of transparency.

When will law school enrollments increase?  When there is a surge in high quality employment for law grads. It’s just that simple.  Legal education now operates in a real market.

Legal Problems and Legal Productivity

I created Legal Evolution because I became convinced that the biggest problem facing the legal profession and legal education was stagnant legal productivity.  Stagnant productivity is bad because it means that solving legal problems is becoming, in a relative sense, more expensive over time.  Thus, as practical matter, fewer people and businesses can afford to hire a lawyer to solve a legal problem.  Those are the economic forces driving the green/orange chart above.

The problem of legal productivity will be recurring theme here.  But a brief, concrete illustration is especially helpful for this post, as there is a systemic breakdown occurring in the practice of law.  This is a substantial root cause of underemployed law grads, flagging starting salaries, and lower law school enrollments.

The NCSC Landscape Report

NCSC_landscapeThe illustration comes from the Landscape of Civil Litigation in State Courts, a 2015 study published by the National Center for State Courts (NCSC). The study compiled data from over 925,000 cases disposed of in state courts in ten large counties that encompass major U.S. cities (Chicago, Cleveland, Honolulu, Houston, Indianapolis, Miami, Phoenix,  Pittsburgh, and San Jose).  The sample was constructed so that it would be representative of the nation based on geography. The NCSC also wanted a mix of general and limited jurisdiction courts.

Below is Table 6, which breaks down the judgment size for the 227,812 cases that resulted in judgments exceeding $0.

Judgment amounts

Remarkably, the median judgment was for $2,441, increasing to $5,595 for matters in general jurisdiction courts. These small sums make it very difficult for lawyers to ethically serve clients and also earn a living.  Thus, perhaps it is not surprising that only 24% of cases had the benefit of attorney representation on both sides of the dispute.  Stated in the alternative, 3/4 of cases involve a party that is going it alone without a lawyer.

The Landscape report acknowledges the sharp divergence between “Justice (with a capital J)” and what actually goes on in state court. The only way to fix it, the report concludes, is through “dramatic changes in court operations … to control costs, reduce delays, and improve litigant’s experiences with the civil justice system” (p. 38).  The problem of affordable legal solutions is so big that non-lawyer entrepreneurs are engineering their business models around Rules 5.4 and 5.5 to access the market opportunity.  In the mean time, the organized bar — judges, lawyers and legal educators — wonder why our numbers are falling.

Related Post:  A Measure of Overcapacity in Legal Education (002)

What’s next?  See Units of Analysis and Adopter Types (007)