the legal thing... by Mike Dillon: The way of the Mastodon

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Tuesday May 22, 2007

The way of the Mastodon

I was having lunch the other day with the GC of a company that facilitates internet sales. I laughed when he told me a story about having to identify an attorney who could advise him on whether there were laws that applied to the sale of Mastodon remains. (Amazing what people have in their garages, these days.)

It was a reminder of the need for technical legal experts that you can turn to for specific help. While I believe that companies will always have this need, the way that we identify and connect with that expertise is quickly changing. And, this will lead to a change in the traditional model for the delivery of legal services – the law firm.

Let me begin by asking - what is the function of the law firm? My view is that law firms serve primarily as aggregators of specialized legal expertise. The premise has been that by combining multiple legal disciplines you can provide “one stop shopping” for current and prospective clients. This structure previously made sense. If you were an individual or business with a legal problem, it wasn't efficient nor effective to try to identify an individual attorney with the technical skills that you required. So, you would turn to a law firm and rely on them to direct you to the appropriate attorney within their firm to solve your issue. The problem is that this model relies on growth (the need to add additional attorneys) to maintain profitability rather than focusing on efficiency gains. In this respect, it is at odds with what I need as a client and General Counsel.

As with so many things, the Internet is changing this business model. It is getting increasingly easier to move the aggregation function in-house. To find an attorney in a specialized area, I don't need to turn to a large law firm. Instead, I send out an email to my network of other in-house attorneys or within professional associations like the ACC and get referrals. Not only that, but I get true “customer feedback” that is more objective than what I would get from a firm. There is now a proliferation of materials available on the web – judicial opinions, legal commentary and press articles that also provide information about attorneys.

The result is that we are increasingly able to identify and engage specific legal talent directly. Here's an example. Like all large companies, we have a certain amount of employment litigation. Almost all of the large firms have strong employment law practices. But, we use a very small firm for much of this work. Why? They focus only on employment law, are very good at what they do, understand our business, get excellent results and are very cost effective. They don't have the overhead of supporting attorneys practicing in other areas.

My point is that the epoch of the current law firm model - which derives its profitability from growing scale and raising hourly rates - will soon be over. The firms that will survive and thrive are those that recognize this change and focus on how to maintain margins by focusing on efficiency. In the future, I'll describe some the things we are doing in this area, but I'll point out that we recently selected a small number of law firms to support us as "preferred partners" during the next fiscal year. We believe that these firms "get it" and are receptive to looking at new ways to drive down their (and our) cost structure. Hopefully, more firms will embrace this change. If they don't, I fear they will go the way of the Mastodon.

Posted on 12:57PM May 22, 2007 | Comments[26]

Comments:

[Trackback] My better half is a lawyer. She practices in a very narrow field of law but she is exceedingly good at it. Trying to inject some objectivity (an impossible task!) - at times, she has so many clients that she has to say “no” to taking on new...

Posted by Kempton's blog on May 23, 2007 at 05:23 AM PDT #

Hello Mike, Thanks for the insightful post. I will show it to my better half who has a very focus and specialized practice. Cheers, Kempton

Posted by Kempton on May 23, 2007 at 05:25 AM PDT #

As a small firm partner (and a former Mastodon), thanks for giving smaller boutique firms your company's business. It is good to see GCs selecting firms, regardless of size, that focus on solving client problems effectively and efficiently.

Posted by David Stejkowski on May 23, 2007 at 03:12 PM PDT #

[Trackback] Coincidentally, one day after my recent article Revolting Against the Billable Hour, (Connecticut Law Tribune, May 21, 2007), Mike Dillon, GC of SunMicrosystems wrote this at his blog The Legal Thing:My point is that the epoch of the current law

Posted by Build A Solo Practice, LLC on May 23, 2007 at 06:54 PM PDT #

[Trackback] Coincidentally, one day after my recent article Revolting Against the Billable Hour, (Connecticut Law Tribune, May 21, 2007), Mike Dillon, GC of Sun MicroSystems, Inc. wrote this at his blog The Legal Thing:My point is that the epoch of the

Posted by Build A Solo Practice, LLC on May 23, 2007 at 06:57 PM PDT #

Posted by Build A Solo Practice, LLC on May 24, 2007 at 04:34 AM PDT #

I was particularly struck by your comment that your need for efficiency does not necessarily align with large law firms’ economic need to grow, as it mirrors one of my all time favorite quotes on the divergence between the needs of the corporate client and the needs of their outside counsel, which comes from the former head of an insurance company, Robert Kingsley, an old college friend and occasional client. In an interview for my blog, Rob pointed out that lawyers sell time, but clients want to buy results, which is the dynamic which he felt interfered with his company’s relationships with counsel. The interview is at http://www.bostonerisalaw.com/archives/interviews-robert-kingsley-on-insurance-industry-consolidation-and-the-pros-and-cons-of-hiring-lawyers.html

Posted by Stephen Rosenberg on May 24, 2007 at 08:23 AM PDT #

As a solo (and BIGFIRM survivor) I am also seeing this trend, albiet on a smaller scale. I am glad that at least some Fortune 500 companies are recognizing that just because you are small does not mean that you cannot provide representation and provide representation as ggod as or better than BIGFIRM (and, typically at lower rates). I like my overhead structure and flexibility regarding fees. Thanks, WDJiii

Posted by Walter D. James III on May 24, 2007 at 09:20 AM PDT #

As a solo (and BIGFIRM survivor) I am also seeing this trend, albiet on a smaller scale. I am glad that at least some Fortune 500 companies are recognizing that just because you are small does not mean that you cannot provide representation and provide representation as good as or better than BIGFIRM (and, typically at lower rates). I like my overhead structure and flexibility regarding fees. Thanks, WDJiii

Posted by Walter D. James III on May 24, 2007 at 09:21 AM PDT #

I was delighted to read this post! I am a former big firm lawyer who has been practicing for 11 years in what we refer to in Toronto as a 'boutique' commercial litigation firm. Small firms can and do represent large corporations and usually can provide superior service in a cost effective manner. We don't offer fancy boardrooms or mahogany panelled walls, but most clients don't want or need these trappings. Most importantly, we don't overload the brief with a plethora of associates who need to pad their hours to meet their yearly targets. Given the steep rise in hourly rates at large firms in Toronto over the last several years, I predict that more general counsel will come to the realization that one stop shopping at the large law firms may not be the best solution.

Posted by D. Evans on May 24, 2007 at 11:22 AM PDT #

Mike, you might want to look at Exemplar- they have some interesting ideas about billing and firm structure which might be of interest to you.

Posted by Luis Villa on May 24, 2007 at 06:06 PM PDT #

Excellent post! Maybe take it a step further, and seek out home office attorneys who have even less overhead to be concerned about! Thanks for your candor!

Posted by Long H. Duong on May 26, 2007 at 04:33 PM PDT #

[Trackback] This post has to do with the practice of law, not the banking business, although I think that it should be of interest to not only private practitoners, but in-house counsel and those bankers who purchase outside legal services without

Posted by Bank Lawyer's Blog on May 28, 2007 at 08:22 PM PDT #

[Trackback] Huh? As they joke about opera, it is not over until the fat lady sings. Well, maybe the fat lady has not sung the fate of Big Law yet, but she is warming up. She is clearing her voice. She is running through the scales. As pointed out by Mike Dillon, S...

Posted by Chuck Newton on May 29, 2007 at 08:07 AM PDT #

Very interesting look at the future. (And a very hopeful one at that considering I work for an IP boutique.) I think another aspect to interject is that buyers of legal services, including GCs, are becoming more savvy consumers. They are able to do a bit more of their own research. But as we all know, word of mouth referrals advise clients best.

Posted by Sarah Hankel on May 29, 2007 at 08:33 AM PDT #

Mike - I'm a BIGLAW survivor and current managing partner of a small firm. It's been my experience that many in-house lawyers are comforted by relying on BIGLAW as a career-protective measure. That is, if an in-house lawyer made a decision to move the work from the tried-n-true blue chip law frim to smaller boutique firm, it'd be their butt if things went wrong. Higher-ups don't care as much about cost reductions as they do about getting results (which is not to say that they don't care about both - just an issue of weighing the two). So, to cover their rears, they leave the work at BIGLAW even at their ridiculous prices and lack of efficiency, rather than give that work to smaller outfits. I'd like to hear your thoughts on this - VJM

Posted by Victor J. Medina on May 29, 2007 at 08:47 AM PDT #

When we broke off from a huge platform to focus on a smaller group of clients almost a year ago now, lots of people said we were nuts. If your post is any indication, we were just ahead of the curve (although we reserve the right to be nuts). Thanks for articulating big arguments in favor of our decision to go small. - Greg Valenza

Posted by Greg Valenza on May 29, 2007 at 04:01 PM PDT #

The Google Generation is here. The large lawfirm will always have its place, but only the fittest will survive, because there is no reason why most legal work cannot be handled, and handled well, by smaller, nimbler lawfirms. Such firms, staffed with competent attorneys who are law-and-tech-savvy and efficient, are the future. Let me provide an example: we all know Westlaw is very, very expensive. Lawfirms do not care, because they pass on this exorbitant cost to their clients. Often, they pass on this cost padded with their own internal billing system--thereby making a handsome profit off of Westlaw sales to their clients. However, there are very cost-efficient competitors to Westlaw. For example: fastcase. Many attorneys may find fastcase very unnerving: after all, it is pure search engine driven, and ranks results much like Google. Westlaw is organized much like books which birthed it, and as such, is a good bridge for lawyers who are not comfortable with the computer. Fastcase is much cheaper than Westlaw, and any attorney who can master such cost-effective ways to lawyer will pass on such savings to their clients. The next crop of lawyers will use the 'net and the computer as an extension of self, and also incorporate cost-effective alternatives, such as fastcase and offshoring back-office work--with vastly efficient results. And much like any lumbering business model that is outclassed by innovation, the inefficiencies in today's legal world will die out, just like the mastodon. Good riddance, I say. ELB, Esq. p.s. please don't sue me if you end up getting fastcase after reading this and cite to bad law. Fastcase is not perfect; it is just an alternative/supplement to Westlaw that I find attractive.

Posted by ELB on June 21, 2007 at 02:59 PM PDT #

Another crock of garbage by a full-of-himself GC. Biglaw firms are mastodons, unless they can drive down costs? Yet one of his preferred firms is K&E, with the highest cost structure, the highest associate salaries, the highest billing rates, and some of the highest PPP's in the nation. Give me a break.

Posted by Bridger Hank on June 21, 2007 at 07:59 PM PDT #

Great post on the future of an industry that usually lags behind others in innovation. To encourage this change, will you be making the list of preferred firms public?

Posted by Steven Moody on July 23, 2007 at 12:46 PM PDT #

[Trackback] Just a few days before my last of work at my prior employer, and before setting out on this new venture, I came across this article by the general counsel of Sun Microsystems. The essential point is that big law firms are becoming less valuable as &#82...

Posted by A Harvard Lawyer In Miami on July 25, 2007 at 07:51 PM PDT #

[Trackback] It's been a little while, but Mike Dillon, Sun's General Counsel, wrote a blog post (The Way of the Mastodon) that has caused somewhat of a stir in the legal community. Basically, Mike argues that, in the past, when he

Posted by Corporate and Securities Law Blog on August 02, 2007 at 03:18 PM PDT #

[Trackback] Sun Microsystems is trying something different -- the company just released its quarterly earnings via 8-K, and simultaneously on Sun's website (and available by RSS feed), and only released the information to the private wire services. As noted in this

Posted by Corporate and Securities Law Blog on August 02, 2007 at 03:19 PM PDT #

[Trackback] Link: Tech GC Reflections on Big Law. I was led to this post by Chuck Newton (a rider of the third wave) and it suggests what many of us have been writing about for quite some time now: The Times

Posted by Web-Tones on September 03, 2007 at 05:59 AM PDT #

Your thoughts are aligned to Richard Susskind's - end of lawyers. Although I think he goes too far. Lawyers will always be needed, but it is what they will be doing that is important. This also leads to another area of contention - if law firms have to start reining in on costs, then the answer has to be outsourcing. Let's face it, we mastodons are already an outsourced service whether we like it or not. So when the likes of Williams Lea LPO or Intergeon want to take some of our volume services, I say take them, let's me focus on what I was trained to do. I don't think we are necessarily dinosaurs and I think the fact that we have to adapt and come kicking and screaming into the 21st Century is a good thing. Pat

Posted by Patrick Cade on February 14, 2008 at 11:59 PM PST #

Mike -- I’m coming more and more to the conclusion that our industry will not change until CEO and CFO’s demand such change from their GC/CLO’s. The law firms are not the problem – it’s the customer and their resistance to change. Change in legal service delivery systems will occur when the customers demand it. There will be disruptive change in the near future – look at Legal On Ramp and the Legal Solutions Network as a couple of examples. I believe that legal services can be divided into 4 categories – advocacy, counseling/advice, content and process. Law firms make their money from the last 2 but through a built in inefficiency. We’re already breaking down the process piece and using other providers that can more cost effectively delivery process than law firms that pay new associates $160K/year. LRN, PLC and even Axiom and others are attacking the content side by reducing overhead and leveraging prior work product, but still trying to keep a hold on the rights to the content to re-charge others for it. I believe that the legal world is moving towards a world where content is essentially free (a frightening concept for LRN and others but even more frightening to LexisNexis and Thompson-West!) – either because we customers share it amongst ourselves, or the market simply drives the content providers there. My personal view is that the wiki model holds the most promise and I’m working with folks to make the “customer-driven and provided” content model a reality. I think we’ll get to a Wiki model where most legal concepts are distilled to content that is then edited and kept current by a network of individuals and specialists with an interest in that particular topic. Case centric discussions will become increasingly less important as we move to more concept centric discussions. After all, most in house folks don’t want to know if they’ll win a dispute they don’t yet have, but rather want to structure their affairs to avoid disputes altogether – in that world, the bespoke, case-centric focus becomes irrelevant. And those individuals that constantly, provide, vet, update, and ensure accuracy of this consolidated content in these self-generating and self policing issue-centric interest groups will, I believe, do so for free with users paying only for the pipes and infrastructure. That pricing flexibility will be strongly limited to the free alternatives available already on the web. This will, of course require monumental mind shift among the lawyers of today – they have to get out of the box that their work is special, unique and custom made in all instances and move to a world where they leverage their prior content and that of others to reduce the cost of delivery of content. Lawyers will, in the world of the future I see, be focused on advocacy and counseling – things they actually are good at. As opposed to content and process – things that they are horribly inefficient at, but the entire economic structure of the industry is based upon. There will be incredible economic dislocation and distress in the transition to that world – law firms as we know them today may no longer exist and massive numbers of lawyers (young and old) will have to drastically change their compensation expectations. These forces and self interested positions that favor the status quo will fight mightily against the forces of change, but I do believe it will happen. If for no other reason because folks like me are committed to building that world – and at this point, I may be crazy, but I’m not alone. The only question is timing – and that depends on whether we’ve reached a tipping point – if not now, when?

Posted by Jeff Carr on February 19, 2008 at 06:44 AM PST #