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The Point

My previous article reported that an internationally prominent alternative legal services provider (ALSP), Axiom, had launched a law firm as its wholly-owned subsidiary in Arizona — with operations and offerings of both ALSP and law firm fully integrated into each other. Last year, Elevate Services, another internationally prominent ALSP, launched its own, wholly-owned and fully-integrated law practice in Arizona under the same regulatory reform that Axiom enjoys.

(An ALSP is typically owned by a legal entity such as a corporation, and offers automated business processes and technologies that do routine and recurring legal tasks more efficiently, more cheaply and more accurately than law firm attorneys or in-house counsel typically can.)

In considering the implications for businesses located outside of Arizona (and outside of Utah, which has enacted similar reforms relating to law firm ownership), I saw two possibilities.

First, might the other 48 states adopt reforms like Arizona’s and Utah’s that allow a business entity like a corporation operating an ALSP to own a law firm? Very unlikely any time soon, I suggested. In the U.S., our legal profession’s opposition is too united — and too vehement.

Second, might integrated ALSP / law firm services authorized by Arizona or Utah law be offered outside of those states under the existing regulatory framework that has long enabled, say, a New York-headquartered law firm to service clients throughout the U.S.? This looks a lot more feasible. Continue reading

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The Point

In every U.S. jurisdiction except Arizona and Utah: “A lawyer or law firm shall not share legal fees with a nonlawyer ….” (With exceptions set forth here that don’t apply to this discussion).

In plain terms, American Bar Association Rule 5.4, and its counterparts in the legal “ethics” canons of the other 48 states, says that lawyers — and no individual or entity other than lawyers — may have any ownership interest in a law practice.

Not a Big Four accounting firm that fields its own teams of attorneys. (In contrast with England & Wales, or Singapore, or Spain, or Canada).

Not an alternative legal services provider (ALSP) that “segments” services ranging from the most sophisticated one-on-one legal advice to automated business processes that do routine and recurring legal tasks more efficiently, more cheaply and more accurately than law firm attorneys or in-house counsel. (Again, in contrast with England & Wales ….) Continue reading

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The Point

I once asked Ben W. Heineman, Jr., legendary GE General Counsel under Jack Welch during the years I served as an executive at GE: “What’s the one key to managing resources in a company’s law function?”

Heineman’s unhesitating reply: “Segment! Segment! Segment!”

As he explains in his book, The Inside Counsel Revolution:

” … Law departments must prioritize and segment the work (his emphasis) from routine with low risk, to recurrent with moderate risk, to repeating cases with high risk, to one-off consequential cases, to one-off potentially catastrophic or transformative matters.” Continue reading

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The Point

Where corporate Legal needs the services of a specialist, it should look primarily among law firm partners for the practitioner who has spent years — more typically decades — focused on the narrow legal area in which the company’s need arises (more on this here and here).

Surprisingly, attorneys employed by such firms as associates — especially the larger ones — receive very little training for their work (see here, here, and here). Yet these law firms assign such associates alongside such partners and bill them at hundreds per hour for their supporting role.

Management lesson: Corporate Legal, to get the expertise its client company requires, should maximize the services of the specialists it really needs, and minimize the services of associates who role is mainly to bloat billable hours (see here and here about the law firm financial technique called “associate leverage”). Continue reading

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The Point

D. Casey Flaherty, legal technology consultancy LexFusion’s Chief Strategy Officer, released an important essay earlier this month. Along with colleagues, he conferred with 435 corporate law departments and 250 law firms in 2022. And with 327 corporate law departments and 240 law firms in 2021. His conclusions:

1. For most companies, the legal system’s demands on corporate Legal exceed that business function’s capabilities to respond. And the gap between those demands and those capabilities have relentlessly widened. So some tasks vital to a company’s legal safety go begging, exposing those companies to potentially catastrophic litigation and regulatory exposure.

2. Meanwhile, corporate Legal has been overwhelmed meeting current needs so that it can’t take the time and money to invest in better ways to do its work. Preoccupied with urgent tactical matters, Legal drops the ball on important long-term strategic needs. So it fails to increase its capabilities at scale, directing almost all of its resources to putting out fires.

3. Despite this precarious mismatch between resources and needs, corporate Legal’s leaders say that they intend, by a large majority, to reduce the budget of their function. Without explaining how they intend to scale capacity to keep pace with law’s relentless, increasing requirements. This is, as Flaherty puts it, “bonkers”. Continue reading

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The Point

Some contracts are more important than others. Figuring out what’s “good enough” depends on the deal’s potential consequences — both good and bad.

Some are considered “bet-the-company”. They call for a degree of quality, investment of time, and costs (especially lawyers’ fees) commensurate with their potential benefit and potential risk. Other, more routine, “run-the-company” agreements might not warrant the same mix of quality, time, and costs.

In business contracting there is no such thing as perfection; only compromises in the allocation of a company’s resources. Continue reading

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The Point

“Corporate Legal”. For decades this phrase has referred to people who have been formally trained and experienced in only one discipline: law. And these people have had just one function: advice and representation on how statutes and regulations — and the courts and government agencies that apply them — could constrain a company’s actions and assets.

Under this traditional view, greater demands on the company from the legal system simply call for … more attorneys. This is how most attorneys in-house and in law firms still view law function capacity.

But Legal can’t keep pace with the legal system’s skyrocketing demands without scaling that capacity. And such scaling demands skills beyond those acquired in Juris Doctor programs and preparing for bar exams.

Continue reading

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The Point

Past actual outcomes should determine who your company chooses as litigation counsel. Jeff Carr breaks it down this way:

“Effectiveness — was customer objective not met, met, or exceeded?

“Efficiency — was actual below or above agreed budget?

“Experience — Customer’s [satisfaction] with team?”

The legal profession — both in-house and in law firms — tends to skip the nuts-and-bolts due diligence required to understand such effectiveness, efficiency, and customer experience. It defaults instead to a loose proxy for these specifics: law firm reputation. Continue reading

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The Point

As both lawyer and executive I’ve seen multiple variations of this scenario: A friend heading an industry lending group at a money center bank calls me. Agitated. He and his counterpart at the potential client company have agreed on all business points for a large loan. But one lawyer’s insistence on their pet wording of some clause threatens to kill the deal, or at least add unnecessary time and work before closure.

Though occasionally legal counsel’s preferred wording may be sound, too often it just reflects one lawyer’s stylistic preferences over another’s — without adding to legal protections. Here’s a corrective viewpoint from Jeff Carr, lawyer and former P&L executive:

“Contracts really are simply business project management charters (who is going to do what when). We lawyers have made them far more complicated by focusing on what happens when something goes wrong. Far better to make sure obligations are understood and can be fulfilled.” Continue reading

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The Point

Two surveys of general counsel reported in December offer identical descriptions of the budget crisis facing corporate Legal departments in 2023:

(1) From the legal system: most face increasing demands, and

(2) From the C-Suite: most face cost reduction demands.

In such circumstances, executive management usually asks Legal for some measure of cost discipline similar to what they ask of other corporate functions and business units. Too often, Legal reacts by threatening a game of “chicken” with the business side: give us the funding we want, or the company faces potentially catastrophic risk.

C-Suites facing intransigence from Legal should consider a tool used where an employee’s performance has slumped, but summary dismissal would be premature: a performance improvement plan. Continue reading

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