Kraft Heinz, the Fortune 500, $100 billion food giant, recently hired 29-year old David Knopf as its new Chief Financial Officer. His promotion, according to a recent Forbes article “is another sign that financial professionals are accumulating more and more responsibility at a younger age.” If Goliath multinationals give wunderkinds a C-Suite seat, why not law? Three reasons are: (1) legal culture; (2) macroeconomic changes that have reshaped the buy-sell dynamic and the vacuum created by law firms’ failure to respond; and (3) the distinction between legal ‘practice’ and ‘delivery.’
Legal Culture Is About Lawyers and Pedigree—Business Keys are Right Resources and Results
Legal culture was fashioned by white, middle-aged lawyers for their peers. This preserved the industry’s homogeneity, and self-regulation maintained its insularity. Lawyers created a ‘legal language’ devoid of plain speak—no doubt to create a verbal moat between ‘lawyers and non-lawyers.’ Legal culture promoted ‘lawyer exceptionalism’ and fueled the myth that everything lawyers do is ‘bespoke’ and requires a formal legal education/licensure. Lawyers—especially those in larger firms—gained the bulk of their experience during years of phased apprenticeship at the firm. The hierarchical structure of law firms militated against meteoric rises, so firm leadership was typically comprised of ‘seasoned’ lawyers–especially those with a book of business. Law was predictable, steady, and static. Those that paid their dues—worked hard, billed exorbitant hours, and fit the firm’s profile were ultimately promoted to partnership—or became partners at lesser firms. The skills necessary to succeed were: knowledge of the law, hard work, endurance, patience, risk aversion, and the ability to maintain client relationships and to create new ones. Innovation was not part of the bargain. Creativity and ‘fresh ideas’ were neither encouraged nor generally well-received. Large firms had an ‘if it ain’t broke don’t fix it’ mentality. As Richard Susskind wryly observed, ‘It’s hard to convince a roomful of millionaires that their economic model is wrong.’
The process was simple and repeated over decades: a company had a legal matter; in-house counsel sourced it to a law firm with whom it ‘had a relationship’; the firm’s lawyers handled all facets of the case start-to-to finish; a bill ‘for services rendered’ was submitted and paid. Rinse and repeat. Law firms rode the wave of their clients’ expansion—first nationally and later internationally. Firms grew and prospered even as the businesses they represented became increasingly diversified, complex, and reliant upon technology and process to conduct operations. Law firms continued to ‘engage in the practice of law’—applying a ‘brute force, ’labor-intensive, ‘leave no stone unturned’ approach even as their clients’ volume of data, regulatory challenges, and trans-border operations demanded that the delivery of legal services—the business of law– be rendered more efficiently and cost-effectively.
Business operates by taking calculated risk and embracing innovation, automation, and digitization; law firms have continued to sell high-priced labor and pedigree—even for the many tasks that do not warrant it. This has created misalignment between firms and clients and has led to a significant diminution of firm market share. Law firms are playing checkers—clients chess.
The Legal Industry Has Been Slow to Adapt to Powerful Socioeconomic Forces That Have Changed the Buy-Sell Dynamic
A Trinity of powerful socioeconomic forces has reshaped the way people live and work across the globe. Those forces are: (1) remarkable advances in technology; (2) globalization; and (3) fallout from the global financial crisis of 2007. The confluence of these factors—and social media –has created a digital marketplace—the intersection of expertise, technology, and process that has altered the way goods and services are bought and sold, providing customers with provider access and transparency; heightened competition; and a reconfigured division of labor operating from new delivery models. Digitization has upended incumbent providers that have failed to embrace it. Medicine, for example has morphed from ‘medical practice’ to ‘the delivery of healthcare services. The medical profession offers a glimpse into law’s future; physician time is now leveraged by machines, process, other professionals and paraprofessionals. Physicians perform only high-value tasks that warrant their differentiated professional expertise, skills, and training—machines and/or others human resources in the supply chain do the rest. Law—like medicine decades earlier—is undergoing a fundamental reshuffling of the deck.