The Business of Law – Marketing and Business for Enterprising Attorneys

Remember Inspector Gadget, the technologically enhanced police detective who used devices such as a helicopter coming out of his hat or a rapidly extending arm to fight crime? Now, some surgeons have themselves become “Doctor Gadgets” by using advanced robots in the operating room to help conduct surgeries.

The Wall Street Journal (subscription required) reported recently about a surgical robot used at a New Hampshire community hospital.   The da Vinci robot (named after the artist and original Renaissance man) has been billed as a medical breakthrough which promises to make surgeries far less invasive.  The robot, which consists mainly of complex lasers and cameras, allows doctors to operate through small incisions to avoid the need to open large cavities such as the abdomen.

The Journal piece notes that the robot became a symbol of health care reform when President Barack Obama was photographed trying his hand at one of the devices during a visit to a clinic in Cleveland.  But what stuck out for me in reading the article was that Obama symbolized somebody with absolutely no training trying to use the complicated robot.

In fact, isn’t that always the case with technology?  It seems to advance faster than we learn how to harness it.

Surgical robots are highly sophisticated devices that require specialized training and extensive experience to master.  In fact, the Journal reports that surgeons with extensive robotic experience say that it takes as many as 200 surgeries before a doctor is proficient in using the machine, a usage rate that is harder for specialists at small hospitals to achieve.  And that’s troubling since the article’s main point is that these surgical robots are being marketed to hospitals as a tool to increase revenues and smaller hospitals are susceptible to that pitch.

Like lots of advanced medical products and techniques, there’s little doubt that robotic surgery can be a promising medical advancement.  But it can also lead to harm: one patient had to undergo four additional procedures due to a medical error that occurred during robotic surgery, according to the Journal article.

As patients’ advocates, we are forced to ask some hard questions about the use of this medical technology:

•    Is there too much competitive pressure to adopt robotic surgery because of its impact on a hospital’s bottom line?
•    What is the appropriate amount of training before a doctor really knows how to handle this technology safely?
•    And of course, are patients knowingly being put at risk?

We will continue to ask these and other tough questions as we watch the use of this new medical technology unfold in the OR.

Corporate retreats have acquired a bad rap with many in the legal and business worlds. And not without good reason: we’ve all heard the horror stories or done time in offsites that were either poorly conceived, or badly facilitated, or whose teambuilding exercises could make a “Survivor” challenge seem positively tame by comparison.

So I read with some interest a recent piece on this subject in the Legal Intelligencer by Joel Rose, a management consultant to law firms.  Rose’s article dealt with the topic of law firm retreats, and he argued that a retreat could be a very effective management tool to accomplish many purposes.

I agree. A change of venue can help jumpstart a change in thinking. Why? Being out of the office levels the playing field and gives everyone a chance to contribute and be heard. And leaving the day-to-day distractions of work behind—even for a brief time–is an effective way to get leaders to think outside of the box and dream. Finally, it’s been my experience that people simply behave differently out of the office.

But like Rose, I think that retreats have to be done right – and for the right reasons — particularly in challenging economic times. A retreat really isn’t supposed to be a day at the beach – even though you may be staying near one.

First and foremost, the retreat must serve a specific purpose.  Rose says it could be as simple as asking the partners to take a step back to think longer-term about the firm’s objectives, or it could be to gather the firm’s leadership to tackle a specific problem. Both are good reasons to forcibly wrest the partners from the shackles of their client work to briefly come together to make important decisions.

But retreats can serve another important purpose and that is to force leadership to think critically about the evolution of their industry and to develop strategies and tactics for how a particular firm or company can respond to those changes.

At Sokolove Law, for example, we’ve made good use of short and highly focused retreats on a number of fronts: to bring key leaders together, to hone strategy to better serve the changing needs of our co-counsels, and to set high expectations for the execution of that strategy. (We’ve recently had two successful retreats with subsets of our staff for exactly these purposes.)

Whatever your reason for calling a company retreat, Rose says that good planning and execution are the keys to a successful outcome.  This includes setting a focused agenda, having the right people in the room, making sure that there is a session leader who can get the most out of the assembled group, and setting a clear plan for implementing recommendations and action plans coming out of the session.

If you follow these practical steps, I think you will find that the company retreat is nothing to run away from.

With Missouri’s recent decision to become the first state to adopt a plan for developing a uniform bar exam, the “Show Me” state is now poised to show us how a nationwide testing standard can transform the practice of law while benefiting both lawyers and their clients.

Missouri’s new exam will focus on key US legal principles and drop the state-specific questions, according to a story in the St. Louis Post-Dispatch. Committees with both the American Bar Association and the National Conference of Bar Examiners have signed off on the plan’s benefits. The state expects to offer the new test in February 2011.

This movement in favor of a uniform bar exam is an important step in the right direction. Legal groups have long pushed for uniformity in the bar exam, now administered through a multi-state test coupled with individualized state exams. Advocates say a single licensing test will allow attorneys who pass it to have more latitude in where they can practice. Standardized exams are already the norm for other professionals such as architects and doctors.

The Post-Dispatch story includes a nice breakdown of this emerging trend, noting that “five to ten other states could be on board in the next few years.”

Adoption of a uniform bar exam has been a long time coming and it’s a positive change.  But there’s more to do. My hope is that this development could also help open the door to uniformity for all of the professional rules that now govern the practice of law.

Rules on professional responsibility (for example, regarding conflicts of interest and legal advertising) vary widely by state.  This has important consequences.  First, it makes being a truly national law firm (as Sokolove Law is) difficult, since it is a challenge to keep track of changing rules in 50 different jurisdictions let alone attempt to comply with them.  The effect is that competition is stifled to the detriment of the clients.

It also doesn’t make a lot of sense. To be sure, professionals in other fields must be licensed by the state in which they wish to practice, but this is often easily accomplished by proving passage of nationally accepted standardized tests (for example, the medical boards) and sufficient professional competency (usually demonstrated through experience, and lack of a disciplinary record).  The same should hold true for lawyers.

Uniformity and standardization both in the requirements for admission to the profession, and in the rules governing it, should be a goal all lawyers can agree on.

Disagree?  Show Me… (pun intended) why I’m wrong.

The 2nd US Circuit Court of Appeals recently rejected most of New York State’s content-based restrictions on attorney advertising by holding that they violated the right to free speech guaranteed by the First Amendment.

There’s a nice analysis of the court’s ruling here at Law.com (subscription required).

While this ruling only directly affects New York’s legal advertising rules, my hope is that it is a wake-up call to the other states with similar restrictions in place.

In its ruling, the court said a number of the state’s regulations on attorney advertising were unconstitutional including:

•    A ban on the use of nicknames like “heavy hitters”
•    A ban on client testimonials about pending cases
•    A ban on the use of special effects, or the image or likeness of a judge

In throwing out these restrictions, the court held that these ad tactics were not “inherently false, deceptive, or misleading”.  More importantly than the ruling on these specific tactics was that the court held that banning protected commercial free speech because it was potentially misleading was not okay.  The speech had to be actually false or misleading.  This is a huge win for those of us who believe that legal advertising restrictions are anti-consumer, anti-competitive and really about protecting turf and the feelings of those members of the profession who find legal advertising distasteful.

If you look at the specific facts of the case involved in the New York decision, you realize what I mean when I say I think it is about taste and not about protecting the consumer.

One commercial showed a judge in a courtroom, who was there to “make sure [the trial] is fair.” Another used wisps of smoke and blue electrical currents to highlight the firm’s name.  Still another firm dubbed itself “heavy hitters,” and ran ads depicting partners as giants towering over buildings and counseling space aliens.  How are any of these advertising methods misleading?

The bottom line is that the 2nd Circuit essentially said it was permissible for attorneys to use the same advertising techniques, imagery, testimonials, etc. as other industries and professions.

There is at least one piece of the decision that troubles me.  The court found that New York’s 30-day moratorium was constitutional as relates to not only the use of targeted mail to specific victims but also indirect advertising such as TV, radio, newspapers and web sites.  No other state takes this aggressive position - at least they haven’t up until now.  Maybe they will miss this part of the wakeup call I hope they get.

At the American Bar Association’s recent midyear meeting in Orlando, an important hearing was held of the ABA’s Ethics 20/20 Commission.  The commission was created last August and charged with reviewing lawyer ethics rules and regulation across the United States within the context of a global legal services marketplace.  If I may paraphrase, the commission was looking to possible reforms to the ethics rules that would allow the U.S. legal market to keep up with the rest of the world.

Much to my surprise and pleasure there was a great deal of debate at the first hearing about the subject of non-lawyer ownership of law firms.  It’s about time.

As we know, Rule 5.4 of the American Bar Association’s Model Rules of Professional Conduct prohibits non-lawyer ownership of law firms.  Simply put, a non-lawyer investor cannot take an equity position in a law firm. The rule was created to ensure that lawyers did not prioritize profits ahead of the best interests of their clients.  We want our lawyers to have a duty to their clients, not be slaves to shareholders.  That seems to make good sense.

However, there are consequences to Rule 5.4 and none more important than the fact that it can stifle growth and innovation in the profession.  But don’t take my word for it.

The February hearing of the 20/20 Commission included differing viewpoints on the subject from Lawrence J. Fox, who practices with Drinker Biddle in Philadelphia, and Richard Granat, who chairs the eLawyering Task Force of the ABA Section of Law Practice Management.  Here are their arguments summarized in brief from the hearing transcript.

Fox compared the idea of non-lawyer ownership to the kind of conflict of interest that existed at Arthur Andersen when it served as both auditor and consultant to Enron. He further argued that the debate over non-lawyer ownership was similar to the debate over multidisciplinary practice that occurred 10 years ago when the ABA proposed allowing lawyers to practice law within entities that included non-lawyers. (A rule that the ABA House of Delegates rejected).

In short, Fox’s argument is that relaxing restrictions on non-lawyer ownership is a bad idea because it could give rise to a conflict of interest. Furthermore, we considered doing it ten years ago and decided not to, so we should reach the same decision today.

Granat, who runs what he calls a “virtual law firm” in Maryland, said that the existing rules limiting non-lawyer ownership stymie innovation in the legal market and prevent firms from finding new ways to  deliver legal services, including online offerings.

In a nutshell, Granat’s argument is basically that our competitors are innovating, and there’s a huge unmet demand for legal services to be delivered in more innovative and efficient ways.  To do that requires capital.

I don’t want to put my thumb on the scale, but it seems to me that Granat makes the better point.  What do you think?

When I was in law school there was a story that got told about a guy who tried to cut his hedges by holding his running lawn mower above his head by the handle.  You can guess what happened next.  He loses his grip on the lawnmower and ends up trimming himself rather than the hedges.   The end result: the addition to the lawnmower’s warning label of a ‘do not hold the lawnmower above your head’ caution.   My take on the story, admittedly once I stopped laughing, was that there should have been no need to state something so obvious. All the label really needed to say was that the operation of the lawnmower required common sense.

Today, the nation’s court system faces a similar dilemma as it seeks to manage juries in the age of smart phones  and Twitter. These and other new technologies and applications have not only changed the speed with which we can communicate with the world. They have also made it possible to communicate from virtually any place, at any time – even from a jury room, where such activity is expressly forbidden. Yet somehow it would seem that the ease and prevalence of these new technologies have stripped jurors of common sense when it comes to complying with the rules of the courthouse.

Let’s start with the basics.  Perhaps you’re a “Law and Order” junkie, or a follower of another television courtroom drama.  Maybe you’ve served on a jury, or witnessed a jury trial.  If you have, you’ve likely heard a judge give the jury instructions admonishing them not to discuss the case with anyone and prohibiting jurors from conducting any outside research beyond the evidence presented within the four walls of the courthouse.

Those basic jury instructions are now being forced to catch up with modern technology.  According to BLT: The Blog of Legal Times, a committee of the Judicial Conference of the United States has endorsed a set of model jury instructions for district judges to help them deter jurors from using cell phones, computers or other electronic technologies during jury service.

The intent of the rule is clear, and it’s consistent with the long-standing rules for juries.  Jurors should decide the case before them on the merits, based on only the evidence as presented in the courtroom.

To ensure this, judges will sometimes order juries sequestered, to prevent them from being exposed to outside information. But what do you do when a juror can access a dictionary, an encyclopedia and a copy of every newspaper in the world, all at the push of a button on their cell phone?

Similarly, in the old days, jurors were limited in who they could talk to on the phone while sequestered.  But how do you limit who jurors can talk to, when the media they communicate with expands to include not only mobile phones but also gchat, Twitter, Facebook, Blackberry Messenger, and text messaging?

The answer is that we make the jury instructions very specific, and we trust jurors to do the right thing.  Here are the key points of the proposed model federal jury instructions:

(Courtesy of our friends at: BLT, The Blog of Legal Times)

Before Trial:

…you should not consult dictionaries or reference materials, search the internet, websites, blogs, or use any other electronic tools to obtain information about this case or to help you decide the case.

…many of you use cell phones, Blackberries, the internet and other tools of technology. …You may not communicate with anyone about the case on your cell phone, through e-mail, Blackberry, iPhone, text messaging, or on Twitter, through any blog or website, through any internet chat room, or by way of any other social networking websites, including Facebook, My Space, LinkedIn, and YouTube.

At the Close of the Case:

During your deliberations, you must not communicate with or provide any information to anyone by any means about this case. You may not use any electronic device or media, such as a telephone, cell phone, smart phone, iPhone, Blackberry or computer; the internet, any internet service, or any text or instant messaging service; or any internet chat room, blog, or website such as Facebook, My Space, LinkedIn, YouTube or Twitter, to communicate to anyone any information about this case or to conduct any research about this case until I accept your verdict.

What do you think?  Important update, or needless revision?

No, it’s not a fairy tale.  The story of the lawyer and the entrepreneur is the vision of some forward-thinking administrators at Duke Law School and the University of Colorado School of Law. Both are in the process of launching LLM programs in “entrepreneurial law” as reported in the National Law Journal  (NLJ) and the WSJ’s Law Blog.

The idea is pretty straightforward. An LLM-level program in entrepreneurial law (with courses and clinics focused on entrepreneurship and emerging companies) will ideally give lawyers greater skills to advise start-up businesses—or to become entrepreneurs themselves.

In the NLJ piece, professors at both Duke and Colorado talk about how lawyers are increasingly called upon to advise start ups, and how a knowledge of business in general and entrepreneurship in particular will be helpful to lawyers in giving that advice.  I agree.  But to me, it’s the second part of the equation that is much more interesting—helping lawyers become entrepreneurs themselves.

Now, as regular readers know, I have argued over and over and over again that the legal profession needs to be more entrepreneurial. The fundamental model is in need of a huge overhaul to become much more innovative and customer-centric.  To do that, lawyers need to think more like business people.  Maybe having some courses in entrepreneurship will help. 

The Duke and Colorado programs promise to teach students about employment, organizational behavior and financial strategy.  These are, of course, critically important parts of business, and long overdue topics for law schools to begin covering.  That said, what about the other aspects of entrepreneurship? What about judgment, about knowing how to calculate risk, and when to take it, focusing on customers, and aligning incentives to maximize output and performance?  These are also critical, and they are not typically associated with law school curricula.

Instead, where entrepreneurs look to balance risk and reward, lawyers tend to minimize risk above all else.  Where entrepreneurs seek out innovation and efficiency, lawyers look to perfect the standard operating procedure, all the while billing by the hour.  Where entrepreneurs by their nature look for shortcuts, lawyers always seem to take the long route.  Where good entrepreneurs are maniacally focused on the customer, lawyers tend to be self-absorbed.

The bottom line is that the entrepreneurship programs at Duke and Colorado are a step in the right direction, and they will undoubtedly help lawyers as they advise their increasingly entrepreneurial clientele. But I’m hoping they will also teach lawyers how to be businesspeople in their own right. If they succeed in accomplishing that goal, the lawyer entrepreneur won’t have to be an oxymoron.

As close readers might recall, I have long called for an end to the billable hour model of legal service, arguing instead that contingency fees were a better solution for lawyers, clients and justice.

Well, as Claire Ruckin over at Legal Week reports, it appears that no less an authority than Lord Justice Jackson agrees with me.

Lord Justice Jackson, a widely respected appeals justice in the U.K., was asked to conduct an independent review of the rules governing the costs of civil litigation in the U.K. and to provide recommendations that would lead to greater access to the civil justice system.

Among Lord Justice Jackson’s conclusions are that lawyers in the U.K. be allowed to charge for their services through the use of contingency fees.

This is an important step for the U.K. because contingency fees had previously been prohibited on the grounds that lawyers with a significant final stake in the outcome might lose their ability to give impartial advice.

As a good English lord might say, that’s poppycock.

Contingent fees align the interests of counsel and clients, and they allow lawyers to take on costly and complex cases with little risk to the client. Finally, these fee arrangements promote efficiency because they encourage lawyers to be honest with their clients about the likelihood of success on the merits.

Most importantly, contingent fees are client-centric; something the legal profession could use a whole lot more focus on.

Whereas the billable hour essentially reimburses lawyers for their time, the contingent fee compensates the attorney for the client’s outcome. Lord Justice Jackson is 100 percent right, no matter how radical his proposal might seem to our bewigged brethren.

D.M. Levine over at AmLaw Daily had a recent blog post titled “Where Do We Go From Here?” The post covered a panel discussion hosted in December by LexisNexis on the future of the legal industry.

As D.M. reports:

The discussion, entitled “Evolution or Revolution: The Future of the Law Firm Business Model,” was moderated by Darryl Cross, vice president of client profitability at LexisNexis, and included panelists from various sides of the legal profession.

The debate was part of LexisNexis’s release of a survey of legal professionals on the future of the legal services industry.

Here are the study’s key findings:

•    71 percent of corporate counsels believe law firms are not doing enough to respond to current financial pressures.

•    57 percent of them believe the billable hour will be replaced by alternative billing arrangements.

•    52 percent of private practice lawyers believe the recession will permanently change the way law is practiced.

One of the panelists summed up the problem thusly: “We’re a profession that, over the last hundred years, has not done anything differently and the only industry that is proud of that.”

Can I get an “Amen”?

As I’ve said here, and here and here, the legal business model is fundamentally changing, and those that respond to those changes will have meaningful strategic advantages.

Which gets us to the question, why is the legal profession so resistant to change? Why are we the only industry that seems to innovate at a snail’s pace?  Here are a couple of possible explanations:

1.     Lawyers like consistency. That’s not a slur, it’s just a fact. Lawyers interpret and apply rules. The more consistent the rules, the more predictable the outcomes, and the easier their jobs are.  There’s nothing wrong with that, and my colleagues who are attorneys will say that there is an important place for consistency and uniformity when it comes to the law.  I agree.  But should that same need for consistency and uniformity apply to the business model?  I think too often we are an industry that does things because “that’s how things are done.”  That attitude is anathema to the entrepreneurial spirit that typically drives innovation and progress.  Bottom line, consistency is important, but thinking outside the proverbial box is the first step toward progress.

2.    Lawyers don’t like risk. Closely related to #1, most lawyers are at some level, in the risk mitigation business.  They minimize risk for their clients and they try to prevent financial harm.  And they should, and they’re right to do so because that’s what they’re being hired to do.  But does that mean that lawyers should be unwilling to take some risk in their business? Of course not.  At Sokolove Law, our contingent-fee business is based on taking risk, with our co-counsel and our clients.  We vet cases and the cases we think have merit, we take to trial with our co-counsel.  We all—our firm, the co-counsel, and the client—have some skin in the game.  It’s one of the reasons our clients come to us.  One of the principal complaints I hear about the traditional legal business model is that win or lose, the lawyers always get paid.  For many in the business community, that’s totally counter to the tried and true idea of shared risk.

3.    Consensus is stifling. One of the topics that came out of the LexisNexis panel discussion is that no one really has the solution to what ails the legal industry, and the fact that there is no consensus seems to be stifling any progress.  That’s totally true. For some reason, the legal industry seems to be convinced that until there is consensus about a new business model, we cannot proceed.  I don’t think there’s much merit to that argument.

There’s a theory in academic circles about “pioneers, imitators, and generics.” While it’s generally used to refer to product R&D, I think it applies to the legal profession as well.

The premise is that the pioneers reinvent the business model through innovation, the imitators perfect the model through trial and error, and the generics go along for the ride, dividing up market share.  The problem with the legal industry is that we have too many generics, and not enough pioneers.   We don’t need consensus to experiment, to try new things, new processes, and new ways of doing business. We need firms that are willing to step out and experiment, to break the mold, to be more responsive to the client’s needs, and to find new and innovative ways of conducting our business.

That’s what we’re trying to do at Sokolove Law.  For thirty years, we’ve been changing how people obtain legal services. Today, we are continuing to pioneer a new business model based on helping our co-counsel do what they do best, while also expanding access to the civil justice system for people who have had no access to it in the past.  If you’re interested in learning more about what we’re trying to do, drop me a note. I’d love to talk about it with you.

A recent Florida District Court of Appeal case could raise serious implications for so-called “third-party litigation financing” (TPLF).  TPLF is the practice of providing money to a party to a lawsuit with repayment of the loan contingent on the party “winning” the case.

Here’s how it works:  I am hurt, I want to sue the party that hurt me, but I cannot afford the costs of litigation.  Currently, there are lenders who will loan me the money to pursue the matter (based on their belief that I will win) and if/when I reach a settlement or am awarded damages, I have to pay back the loan plus interest.

The Florida case was significant since it held that a third-party funder was by law, a “party” to the lawsuit, rather than an arms-length lender.  The reason that this matters is because the court then held the lender liable for the other side’s attorney’s fees and costs — just as it held the named plaintiff liable.  That’s important, because if you’re a party to a lawsuit you expose yourself to all kinds of responsibility and liability that a lender certainly doesn’t bargain for.

For me, the Florida ruling is a chilling one for lenders because it says that if a lender lends you the money for a lawsuit, and tries to protect its loan by involving itself in the case, then they may have the same liability that you do.   In its decision, the court focused on the degree to which the lender sought to participate in the plaintiff’s prosecution of the lawsuit in order to protect its loan, honing in on the fact that the lender had the right to approve the choice of counsel, “veto power over whether litigation was filed, who would file it, and how it would be pursued,” and “final say over any settlement”.

Granted this lender played a much more active role than typical TPLFs but what a slippery slope the court’s decision starts us down.

Keep in mind that the court wasn’t saying the plaintiff was a shill for the lender.  But consider the potential ramifications of this decision.  Imagine that after you take over your father-in-law’s business, you find that you have to sue a big distributor that has just breached its supply contract, which may result in your company going under.   “Dad” knows the business better than you, he knows just the right lawyer, and has a serious personal stake in his son-in-law’s ability to provide for his daughter.  Maybe he still has some of his money tied up in the business.  So he gets involved and loans money to fund the lawsuit on the condition that he actively participates in how it is run. Do you now have to warn him that he might be on the hook for attorney’s fees if you lose?

Let’s step back from my intentionally one-sided fact pattern and talk about what is really going on here.  There is an ongoing war between those in favor of TPLF as a way to help people most in need get their day in court and those that see it as the work of the devil.   In October, 2009, the U.S. Chamber Institute for Legal Reform (an interest group founded by the U.S. Chamber of Commerce) issued a paper outlining their view of the matter.  In it, they wrote:

“The root of the problem with third-party litigation financing is that it introduces a stranger to the attorney-client relationship whose sole interest is a financial one. “

(As an aside, it’s always interesting when the U.S. Chamber of Commerce is attacking people for having a “financial interest.”)

However, that’s not the Chamber’s real argument.  Its real argument is that access to lending will increase the number of cases that are brought.  For the business community, which sees lawsuits not as an access to justice issue but simply another cost of doing business, that’s a problem.  Right now, businesses rely on the fact that most people don’t know how to or have the money to protect themselves.  If lenders are willing to finance suits, it becomes easier for people to sue, and that means more litigation, more settlements, and more money (and by the way, more compensated tort victims, though they always seem to forget that part).

We at Sokolove support more access to the civil justice system.  We’ve made it our business for over thirty years.  If lenders are able to allow more people to have their day in court, that is a positive development in our view.  Agree? Disagree? I’d love to hear from you.