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The Florida Bar News - July 15, 2014

Legal profession must change with the times or be left behind

By Mark D. Killian
Managing Editor

Despite disruptive technologies and increased competition from nonlawyers, the future for lawyers is bright if they are willing to retool their firms’ business models, incorporate emerging technologies into their practices, and tap into underserved markets.

Jordan Furlong “There are a lot of things you can automate and outsource and algorithm to your heart’s content, but there is still a whole bunch of things you need a human lawyer for,” said Jordan Furlong, a lawyer, consultant, and legal industry analyst who forecasts the impact of the changing legal market on lawyers, clients, and legal organizations. “You need our judgment, you need our counsel, you need our courage, and you need our wisdom.”

Furlong provided the keynote address at the presidential showcase seminar “Deep Impact: Climate Change, Competition, and the New Legal Market” at the Bar’s Annual Convention in Orlando.

The seminar also marked the end of the first year of the three-year quest of the Vision 2016 Commission to identify the challenges that lie ahead for lawyers.

“We have to change the culture of not just our own lives, but of our judiciary and our legal practices so that we can be more efficient,” said immediate past President Eugene Pettis, who created the commission. “That’s what I want to get out of Vision 2016 as we move forward.”

The Vision 2016 Commission’s four subcommittees are studying technology, legal education, bar admissions, and access to legal services so as to build “a roadmap to come up with some kind of deliverables,” as the commission moves into its second and third years.

The seminar provided strategies and tactics to emerge from this time of disruption stronger and better able to serve clients.

The Outdated Business Model
“If you are in a law firm today, then you are operating within a business model that evolved in a very different time, a very different climate than what we have today,” said Furlong, a Canadian lawyer and consultant to law firms on strategic and tactical issues with Edge International.

He said the difficulties dinosaurs encountered with the cataclysmic impact of an asteroid that dramatically altered their environment is analogous to what lawyers are currently facing.

“The dinosaurs existed for 200 million years,” Furlong said. “How did they do that? Because they were masters at adaptation. They evolved perfectly to fit the environment of their time. But when that environment changed very suddenly, very severely, they could not adapt fast enough.”

Furlong said that is where the legal profession is today — its business models and infrastructure were shaped in a much different era.

“Your law firm evolved at a point in time when lawyers had completely unfettered and unopposed access to the legal marketplace, when clients had absolutely no knowledge of the law, very little sophistication, and even less power or ability to affect the way in which their lawyers operated,” Furlong said.

The world, however, has changed and firms are struggling to keep up with the nature of the market.

“Not as lawyers — I have a very strong belief there is a place today for lawyers and I believe there always will be — but our business enterprises, how we deliver legal services to our clients, these models are now in a lot of trouble,” Furlong said

Faced with an economic downturn, declining revenues, more sophisticated clients, and sharper competition, Furlong said the challenge is for lawyers to find ways to adapt and move forward.

The Iceberg
The entire legal market can be compared to an iceberg. The 15 percent that rises above the water is the legal market that all lawyers deal with now; “those are the clients — the ones who are giving us money,” Furlong said.

“When we talk about access to justice and availability of legal services, if you are in the top 15 percent, you do not have an access to justice problem,” Furlong said. “If you have the money and inclination to hire a lawyer, you can find one.”

It is the 85 percent of the iceberg below the surface where “huge numbers of opportunities and huge numbers of challenges and problems exist, and that’s where lawyers don’t go.”

To back up his 85 percent analogy, Furlong noted some national and international statistics:

* 80 percent of divorce cases in Florida include at least one pro se litigant.

* 80 to 85 percent of legal consumers in California are self-represented.

* 88 percent of Canadians chose a nonlawyer option to resolve their justiciable issues.

* 84 percent of legal needs of United Kingdom small businesses were resolved without lawyers.

Citing the U.S. Justice Department’s 2007 Currie Report, Furlong said when asked what action they took when faced with a justiciable problem, 44 percent of those surveyed said they dealt with it themselves; 22.2 percent did nothing; 22.1 percent obtained nonlegal help; 88.3 percent did not obtain legal help; and only 11.7 percent sought the advice of lawyers.

Those findings, Furlong said, represent a vast untapped legal market.

“This is the situation we are up against right now.”

Furlong said it is startling that a full 85 percent of those with legal problems are “not even paying attention to lawyers,” until you realize lawyers are not paying attention to the 85 percent, either, because firms — as they are structured today — cannot make a profit addressing their legal issues.

For the 15 percent of the legal market that currently retain lawyers, they also are increasingly pushing lawyers harder and are looking for new options to deal with their lawyers. They, too, are not satisfied going forward with the way things were done in the past, he said.

“The 85 percent say, ‘We now want other options,’ and the thing of it is, they are getting them,” Furlong said. “We are looking at the emergence of a support network for self-representation.”

Furlong said even though the legal system is not set up for people to represent themselves, the profession is staring down the normalization of self-representation and self-navigation of the legal process.

“This is where we are going; this is what is emerging.”

In 2013 alone, Furlong said, $458 million in venture capital was invested in legal start-ups in just the United States.

“That’s nearly half a billion dollars pouring into legal start-ups, technology-based companies, or software or new processes,” said Furlong, noting $200 million alone was invested in LegalZoom, the online company that can draft, in a matter of minutes, “airtight, top-notch contracts,” without the use of lawyers.

Furlong said law firms need to re-examine their business models, kno w their costs, and fix their pricing. He said firms need to ask themselves what they spend to deliver specific client services, decouple spending from pricing, and eliminate cost-plus pricing. Firms must create reliable, ranged, or fixed-fee regimens.

“The point is not revenue; the point is profitability and sustainable profitability over time,” said Furlong.

Furlong said many lawyers treat their best clients the worst.

“If we try to lure in new business, we say we will lower our rates, and the regular clients that have been keeping us afloat for 10 years, they get the flat rate,” he said.

“Eliminating cost-plus pricing is going to get us a long way toward where we want to be,” Furlong said. “Where do we want to be? To be able to create fee structures that are reliable, predictable, and have degrees of certainty.”

Why? Because, he said, the legal market is being flooded with new competitors and providers who say they can provide these products and services lawyers offer at a set price.

Furlong said when a client comes in and says, “What is your price?” and lawyers continue to say, “I’m not sure; I do not know,” they are at a huge disadvantage “which I don’t see how we overcome.”

Lawyers also need to adopt new technologies and workflow into their firms.

“The question is not: Can a machine do what I do? The question you should be asking is: ‘Am I doing something a machine can do?’” Furlong said. “And if not the machine, a process or an outsourced individual, or someone who has a specific ability, skill or trait I can use.”

Furlong says he goes into too many firms and sees partners doing work an associate should be doing or associates doing work paralegals should be doing.

With the advent of advanced e-discovery software, Furlong said, it no longer makes sense to task first- or second-year associates with combing through thousands of documents when a computer can do it faster and more efficiently, freeing up lawyers to focus on more intellectually challenging and profitable work.

“This friend of mine in the legal tech business says humans plus machines are better than humans alone, but machines are not there to replace humans,” Furlong said.

To better serve existing clients, start by immersing yourself in your clients’ world and strive to anticipate their needs, he said.

Bar President Greg Coleman asked the seminar participants how many of them have Googled their area of practice.

“If you are practicing in the area of employment law and are suing people for sexual harassment and you have not Googled the term ‘sexual harassment,’ or ‘employment claims,’ or things like that, trust me, the person that is walking into your office has — not to mention they Googled you,” Coleman said. “If you do not know the information that they know, you are at a significant disadvantage.”

Tap the Untapped Market
Furlong said the most conservative estimate he’s seen for the value of the American legal services market is $216 billion annually.

“That is the 15 percent” that now utilizes lawyers, Furlong said, but there is value in the 85 percent that is “underneath that iceberg.”

“What if you could turn the 15 percent into 20 percent or even 16 percent?” Furlong asked. “Look just below the waterline” and find a way to serve those clients, he said.

Furlong said lawyers need to run their firms in a way that their costs are low, their systems are streamlined, and the process is accurate enough “that you will be able to say I can reduce my prices and still produce a profit.

“What if you could profitably serve part of the 85 percent?”

Furlong said all storms come to an end and he is convinced there are ongoing opportunities for lawyers.