Legal profession facing challenges from all sides

"We are so caught up in digital, but there is still a place for analogue – we need to evaluate if we need all these new digital tools. Sometimes we want to have more control. Sometimes this tends to get overlooked. There must still be a place for the human."
Steven Richman, Section Chair, American Bar Association (ABA) Section of International Law

While everyone is talking and going digital, Steven Richman, Section Chair, American Bar Association (ABA) Section of International Law, expressed his view to members at the 2018 North America Leadership Conference, that professional advisors need to tread carefully and to evaluate new digital technologies with a clear head: “We are so caught up in digital, but there is still a place for analogue. Do we really need all these tools? Sometimes it is better to retain more control - this tends to get overlooked. There must still be a place for the human being in providing services.”

Richman gave another view however that while people are concerned about technology taking away jobs, jobs are usually created in other areas, and that rather than fear it, we need to embrace it or "at least make sure we understand it." 

Billable rates– no link to productivity?

Next on Richman’s hit list was the billable hour. Referencing a 2017 report that explains that lawyers on average bill 2.3 hours per 8 hour day on billable tasks, Richman commented: “I don’t know who bills this little and still has a job!”

Richman urged the profession to adapt its thinking on billing, arguing that the billable hour was, in relative terms, a fairly new concept, given its widespread adoption from the 1950s onwards and that it should have remained no more than a parameter. A more realistic assessment of how the profession gauges its economic needs to be considered, suggested Richman: “Lawyers don’t give 60 minutes in a billable hour, there are too many interruptions […] today the billable hour has taken on a whole new meaning and it’s getting worse as people look to set minimum hours and control what they think is productivity.”

More flexible, alternative billing arrangements need to be looked at by lawyers, argued Richman, particularly as clients are demanding it and know they can get it from other suppliers. Richman explained that he is seeing spin-off boutiques from larger firms offering more flexible billing approaches: “There are all stresses on the current way of doing business,” explained Richman. He also suggested that high billing levels, some as high as $1,000 an hour, were unsustainable:

“In my view, the client has a certain base level of expectation of the advice they will get. It’s difficult to understand what more a client can get from a $1000 an hour lawyer than from a $750 an hour lawyer. Some clients are going to other legal providers instead.”

Flat fees and lawyer matching services

Websites matching clients to lawyers have become another stress point for the profession, with Richman pointing out that the ‘management fee’ these services receive when the work is done is viewed in some states as a ‘referral fee’ which is not ethical. While it is a different model and there are ethical issues, explained Richman, these new models are are managing to challenge the traditional way of providing legal services.

Reference was also made to online legal services such as Legalzoom, Nolo and Rocket Lawyer, which as Richman explained, help people to create their own legal documents. However, it was pointed out that there are restrictions in terms of what the service can do in the way of telling the user how to fill out a form as that would be practising law. The same ethical issue relating to management fee versus referral fee would arise in some states however, explained Richman, if a lawyer is needed and the client had to be referred to a licensed lawyer in a particular jurisdiction. Another fundamental issue with these online providers is that it is not these companies which are regulated to practise law, but instead the individual lawyers, commented Richman.

While some of the online providers might offer e.g. a review of the first 10 pages of a legal contract by a lawyer, Richman highlighted the weakness of this, musing: “But what happens from page 11?!”

The attractiveness of these services is likely to endure, concluded Richman, if only because they are affordable compared to using a traditional law firm.

Ownership of law firms and ‘Walmart Law’

Richman also questioned why the US remains a more restrictive environment, compared to its foreign counterparts such as Germany, when it comes to allowing non-lawyers to share fees and become owners/partners in law firms.

Richman explained that outside of Washington DC, non-lawyer ownership of law firms is not allowed. He reasoned that it didn’t seem right that it would be illegal in most places in the US for a lawyer who, for example, finished top of her class at Harvard Law School and who wants to practise trust and estate work, to not be able to offer legal services out of a Walmart, should the store decide to employ a lawyer and pay the necessary regulatory fees for her to provide advice on wills from the store, even if it is a loss leader for the business. On the other hand, Richman explained, you could have someone who finished bottom of his class at the lowest ranked ABA law school who passes the bar exam at the fifth attempt, and can then offer the same services from a law office as he is not sharing fees with non-lawyers. Richman commented that the benefits of the Walmart approach could be significant in terms of increasing access to legal services:

“There have been experiments with this in England e.g. ‘Tesco Law’. Why not have the small firm who doesn’t want to spend the time doing administration or buying the technology, be able to bring in non-lawyers who can take care of these aspects and who won’t just be paid as employees, but instead as business owners? If the confidentiality and ethics are all in order, maybe this is something to consider.”

Disruption of legal practice by consulting companies

The traditional use of lawyers has also changed, explained Richman, particularly in light of the growing phenomenon of consulting companies or other entities working with in-house counsel. Richman commented: “Is it more efficient? Maybe! In the past, a business would have had their lawyer, accountant and banker, but now you have all these other people involved in the provision of legal services.”

The justice gap

What is driving change in the way law is practised is that most people are not using lawyers as moderate and low income people find the current legal system “unaffordable”, commented Richman. “This is contributing to a lack of access to justice.”

Richman expressed his concern for what is termed the “justice gap”, explaining that a company with a $50,000 claim may not be able to take the case to the end or get sanctions passed, particularly if a case had dragged on for a year and the client had run up $55,000 in legal fees.

In terms of a solution, Washington state has allowed ‘Limited License Legal Technicians’ to practise in certain areas of the law, expained Richman. He added that they can advise a client on documents but can’t go to court or negotiate and are also allowed to own up to 49% interest in a law firm. He also highlighted that other states such as New York have variations on this such as the Navigator Program.

In Richman’s view, there needs to be a mindshift in most states in terms of who can do legal work and represent clients in court. A useful comparison was made with registered nurses:

“Yes a doctor can take blood, but maybe this can be done equally competently by the nurse – they fill a niche when people absolutely have to get access to these services.”

Beware the accountants!

According to Richman, another factor in their macro environment that lawyers need to be alive to is the extension of accountants' business into legal services. Referencing an article in the Economist about PwC setting up a law firm in Washington DC (known as ILC), Richman commented: 

“The accountants are coming after the lawyers’ business! People want a one-stop-shop.”

The brave new world of third party funding

Another change to the way lawyers have done business in the last 20 years, explained Richman, is third party funding of litigation, a development liked and loathed by bar associations in equal measure. This refers to when a commercial party has a meaningful claim against another party but lacks the ability to fund litigation. In this instance, the third party funder takes a percentage of the recovery. The issue with third party funding raises concerns that the lawyer is improperly funding a litigation, or that the third party funder may direct the lawyer in ways inconsistent with the client's best interests, or there may be a breach of attorney-client privilege, among other things.

Misuse of social media

The way social media is used by some lawyers is also a huge issue, according to Richman who commented with a smile on his face: “The rules actually haven’t changed in law firms. When I started practising law nearly 40 years ago, we were told three things: 1) everything you talk about in the firm, stays in the firm ; 2) you don’t talk in elevators, 3) you don’t talk in restrooms or on trains!”

Artificial intelligence– infinite possibilities, but needs to be used selectively

Finally, Richman discussed use of artificial intelligence technologies in the practice of law. In Richman’s view, while these technologies have shown they have merit, particuarly in predictive analytics, lawyers still may need to retain control as there are ethical obligations of supervision, diligence and competence. He explained that AI should not be used in the same way that automatic braking systems were not necessarily a good idea in cars where human judgment and/or preference can be more appropriate.

In terms of software’s ability to predict case outcomes, Richman referred to an article in the Financial Times “Techmate: How AI rewrote the rules of chess” in which Google designed a chess program and instead of feeding in gameplay from 1,000 games with all the moves, Google simply fed it the rules of chess. The computer then started playing against itself and taught itself based on only the rules. Richman explained that the Google computer had a completely different style of playing and beat the computer that had all the gameplay experience. An excited Richman explained: “This is HAL, this is 2001. This is really what AI is about– if it can happen in chess, it can happen in law.” 

Applying this to the legal sector, Richman highlighted how court decisions from the European Court of Justice, the facts and the way the cases were structured had been fed into a computer. Without giving away the outcomes, the computer was asked to predict the outcomes, achieving a 79% accuracy prediction rate. Given that in New Jersey, the rule of thumb is that about a third of all civil cases get reversed on appeal, this means that 67% of trial judges get it right. Richman asked a fascinating question: “So, is a computer a better trial judge?”

Furthermore, wondered Richman, with his tongue firmly in his cheek, would it be committing malpractice if a lawyer didn’t buy one of these predictive analytics programs and failed to adequately advise his/her client on the chances of success? “If it all goes wrong and you are sued for malpractise, do you need another computer program to be the expert witness against your computer?,” quipped Richman.

"This is not the future, this is now," concluded Richman who signed off his presentation by asking if law firms will be left picking at the scraps or if this is indeed a new dawn.

You may also be interested to read...

• Disruptive technology: A powerful tool in the hands of today's forward-thinking, entrepreneurial CPA