Articles Posted in Segmentation of a Company’s Legal Matters

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The Point

The above from a headline in Corporate Counsel (subscription required) last week.

Nathan Cemenska is an attorney who is Director of Legal Operation and Industry Insights at Wolters Kluwer ELM solutions. In a report issued earlier this month, LegalVIEW Insights volume 2023-1: Law firm rate increases, he contends that intimidation confines corporate Legal’s negotiation efforts to “where it matters least”:

“In smaller, less expensive firms where both rate increases and the underlying rate tend to be lower, limiting opportunities for savings …

“As long as corporate law departments continue to stand in awe of their largest firms and steer away from the application of any serious pressure to rates at the biggest firms, hourly rates at those firms will compound year over year and become outrageous by any definition.” Continue reading

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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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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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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

From a November 28 report in American Lawyer Media / Law.com (subscription required):

“‘Surprised, Angry, Dismayed’: Legal Departments Vow to Fight Law Firms’ Rate-Hike Plans … The in-house legal community is expressing outrage that law firms will be pressing for aggressive rate hikes in 2023, even though they know that legal departments are under extraordinary pressure as the economic outlook sours”.

C-Suites and business owners concerned about their Legal functions have three options here:

1. The emotional option: Whine about frustrations,

2. The tactical option: Make do the best they can without challenging law firms’ status quo for hiring specialist attorneys, and

3. The strategic option: Take charge, using the same management disciplines by which other corporate functions and business units achieve operational effectiveness. Continue reading

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The Point

  • Recently the Arizona Supreme Court granted Axiom Law authority to provide licensed lawyers and their legal advice directly to businesses that do not have a general counsel or other full-time attorney on their payroll.
  • This matters because attorneys’ bar regulations in the U.S. (except in Washington, D.C.) have prohibited such a direct offering by any entity owned by persons who have not been licensed to practice law.
  • In over 20 years of providing qualified attorneys to businesses that do have full-time in-house counsel, and currently generating in excess of $1 billion in annual revenue, Axiom Law is renowned for two traits:
    1. The high quality of the lawyers it provides to companies; many of whom have practiced law with prestigious traditional law firms or Fortune 500 general counsel offices, lots of them with Ivy League pedigrees, etc., and
    2. Fair charges to their corporate clients. Unlike traditional law firms, Axiom Law does not bill by the hour.

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The Point

Corporate law functions perennially experience chronic shortfalls between the capabilities they have and the ones they need. Meeting these shortfalls requires Legal capability increases at scale. But, as illustrated by Microsoft’s / Jason Barnwell’s experience described in Part I of this two-part series, most law firms resist cooperation  with “law companies” or “alternative legal services providers” who provide the software, data analysis, and business process expertise needed to do routine, recurring “process work” (or “efficiency work” as Elevate Services’ Liam Brown refers to it below) at-scale.

Elevate Services is an outlier among U.S.* legal services providers which has organized itself to offer corporate clients both (1) legal advice of licensed attorneys like that found in a traditional law firm, and (2) software, data analysis, and business process expertise offered at the high standards offered by law companies or alternative legal services providers.

The result: Elevate Services offers its corporate clients at-scale responses to skyrocketing legal and regulatory demands at lower cost, greater speed, and greater accuracy than a traditional law firm can offer. Continue reading

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The Point

    1. Corporate law functions perennially experience chronic shortfalls between the capabilities they have and the capabilities they need. Absent an unlimited budget that can simply add lawyers in response to each new legal and regulatory demand, Legal must increase its compliance capabilities at-scale just to keep up.
    2. In a recent series (Parts I, II, III, and IV) I explained that process-based systems are necessary to achieve such at-scale increases in Legal’s compliance capabilities. Again, just adding lawyers is not sustainable.
    3. But the legal profession’s still-dominant billable hour business model impedes Legal’s adoption of the modern automated systems needed to scale Legal’s capabilities.

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The Point

My posts of February 16, 2022 and February 19, 2022 quoted Microsoft’s Jason Barnwell on how to allocate — or “segment” — law function resources:

First Class: “There will always be a slice at the top that is premium work, and it’s always going to make sense to go to the law firms for that.”

Economy Class: “We need to get lawyers out of the middle of stuff when it’s a low-value thing.”

In-between: “Success for me is not getting limousine service for every task and need that Microsoft has.”

Sound advice from Mr. Barnwell. But unlikely to work without the right incentives. Continue reading

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