An End to the Traditional US Law Firm Monopoly

We need to end the traditional law firm monopoly in America. And, by the looks of it that project is now well underway.

On Monday, Big Four firm Deloitte announced the launch of its Legal Business Services group in the US – triggering the usual cries of anxiety from some parts of a market that is in effect a monopoly – and a monopoly dominated by ‘traditional’ Big Law firms that is ripe for change.

These cries of ‘Woe is me!’ took place even though Deloitte is NOT offering legal advisory services in America, nor can it because of a regulatory system that dictates and protects the desires of the traditionalists – but more on that in a moment. In fact Deloitte in the US is offering Legal Managed Services, i.e. process crunching, not regulated advisory work.

The big question then is: in a market where we probably won’t see significant deregulation any time soon, how can we end the traditional law firm monopoly and drive up competition for the benefit of clients and society as a whole?

The Process Rush

US history has been punctuated by gold rushes where a new seam of wealth was discovered, triggering a surge of interest around the world. What we are seeing now is the same, but in relation to legal process work.

What do you mean by ‘legal process work’? This is all the activity, whether tech-enabled or not, that forms a large part of what we call ‘legal services’. A classic example would be document analysis and review work, whether that was for eDiscovery, regulatory investigations, M&A, real estate, HR, financial sector compliance, and a dozen other areas.

This is where the focus is not on having a room full of equity partners, who could – if they wanted to – walk out of the office and set up their own Legal Services Business (LSB) offering high value and complex advisory services – regulated under the local Bar Rules.

This is about an organisation – whether owned by a group of lawyers or not, and either way is fine by me – where its primary objective is ‘crunching’ this process: performing this work faster, better, and it is hoped, more economically.

And that is what is happening now. Look at the growth of:

• Elevate for example, (see the recent feature on how they have grown outward in all directions),
• or the growth of groups such as UnitedLex,
• and the expansion of Epiq far beyond ediscovery,
• or the launch recently in the US of Eversheds Sutherlands’ Konexo group,
• and the acceleration of ex-Axiom groups such as Factor and Knowable.

In some cases these groups are leveraging NLP and machine learning technology to support the process work, and very often have a focus on a more effective leveraging of human skill-sets outside of the overly expensive and inefficient traditional law firm pyramid system with its anachronistic billable hour model – which despite the steady increase in AFAs and fixed fees, still dominates the traditional Big Law world.

So, what are all these businesses doing? (And as seen, some of these are indeed owned by law firms.)

They have seen the reality that providing legal services to society is as much about process lines of necessary and meaningful activity that is not ‘regulated legal work’, as it is about having super-experienced senior lawyers who can give you life or death legal advice, or turn up in court in person to fight your case – which in the latter cases is regulated, and understandably so.

The Future The Market Deserves

All of the above process-focused activity has been driven by the fact that the ‘traditional’ Big Law firms have not met these needs as well as they could. Not all major firms are like this. A growing number are embracing this approach and have built their own process groups, and frankly if more had done this in the past, as well as more rapidly embracing NLP tech to speed doc review, much of the above would not have happened as it would not be needed. But they didn’t change fast enough.

This site doesn’t mind who does the serving, or how (as long as it’s ethical….obvs.), just that society’s legal needs are met in the most cost-effective and efficient way possible. Artificial Lawyer would welcome some of New York’s elite ‘White Shoe’ LSBs launching their own process groups, tying up formal alliances with the Big Four, or other process groups, and generally dumping the billable hour and other client-exploitative methodologies. That would be great.

A world where all the best advisory skills were directly connected to all the best process capabilities would be a wonderful thing. And some once traditional advisory LSBs are doing this (see above). One could also argue that the Big Four is exactly this marriage of regulated experts and non-regulated process expertise that the market needs. This site just wishes it was the Big Twenty, as Four does seem to be far too few.

So, why haven’t all the old Big Law firms embraced this change? The answer is inefficiency and exploitative practices continue to be incredibly profitable, while clients remain willing to go along with this, in part because they haven’t fully realised in some cases what alternatives exist, or sometimes they don’t dare to make use of them.

In fact, in a world where law firms fire their clients for wanting change, what hope is there for real change from within? A senior inhouse lawyer recently told this site how the global company they worked for went to a number of leading US law firms and explained they wanted new arrangements for how process work was handled and priced. Rather than even listening to this reasonable request the law firms told the client they’d prefer not to advise them.

In a market where advisors can snub one of the largest companies in the world and not even be that bothered, it’s no wonder that it’s taken new entrants to shake things up.

The Regulatory Dictatorship

How do you know if you live in a dictatorship? The answer is that there is no realistic way to change anything, no matter what society may want.

Now, let’s consider you wanted to allow people who are not lawyers to co-own businesses that offered regulated legal advisory services, something that is allowed in some countries, such as the UK, for example. This would allow different professionals to work together for the benefit of clients, and permit external funding and ownership to help rapidly build useful and process-focused LSBs that could also offer legal advice to clients.

The US operates at a State Bar level, so you have to convince your regulator there if you want any changes. But…..the regulator is also in effect the State’s court system….which is run by…..lawyers. You see the problem…?

And this is the absurdity of expecting radical change from a system that not only regulates itself – which is quite common – but most importantly controls any legal means of change as well.

What is meant by that? Let’s take a theoretical example. Let’s say in country X the dentists have forbidden the brushing of teeth without a dentist present. This is to protect the clients, they say, as people cannot be trusted to brush their own teeth without a dentist receiving a fee.

People decide this is a bad rule and start the process of challenging it. It goes all the way to the Dental Council, which regulates the profession (as this is a self-regulating sector like law). At the Council the demands to brush your teeth without dentists involved is rejected, as of course the Dental Council wishes to protect its powerful position.

But, at this point people can then go to court and seek lawyers’ help against the dictatorial dentists. As the lawyers have no special love of dentists the people win and the dental tyranny is brought to an end.

OK, I hope you can see where I am going with this Swiftian analogy. The problem with trying to change legal market regulation is that the ultimate power here are the same people, i.e. if you go to court you get confronted by the very people you’re trying to deregulate. Which is why this site doesn’t really expect any significant regulatory change in the US legal market despite some brave efforts in places such as California recently.

The only real solution is Government intervention – as occurred in the UK, as strangely, UK lawyers also were not excited about the end of their monopolistic realm. But, that discussion is for another day.

Conclusion

The monopoly of the old Big Law model cannot be undone in the US via regulatory change. The way to battle this monopoly is to go after what is available – and that is the process work.

In short, take every iota of process work that is worth taking and then we will see some real movement in how the market works.

Is there a large process market? No one really knows how big it is, but of the hundreds of billions of dollars paid out in legal services bills each year in the US, how much is ‘process’ rather than specific advice or standing up in court defending a client? The short answer is: a lot. Billions of dollars’ worth of work, that is for sure.

And that is where everyone who is looking for a growth opportunity should be right now. That is also how change will come, not by hoping the monopoly will voluntarily put an end to itself, but by building process-focused businesses that give the clients what they want.

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P.S. If you agree with this thesis, then drop me a line, there’s a little project Artificial Lawyer is working on. And, if you disagree, also please let me know.

By Richard Tromans, Founder, Artificial Lawyer, (July 2020)