Prospects for Legal Innovation

7 Aug 06

While most lawyers are currently uninterested in innovative structures or services, there are a few exceptions.

Consider Brian Capstick, the Senior Partner of the UK law firm Capsticks.   On June 29, 2006, he was selected from 300 nominees as the most innovative lawyer in the UK, in the first Financial Times survey of law firm innovations. 

Brian Capstick, UK’s Most Innovative Lawyer in 2006

The Financial Times reported:

“Mr Capstick developed modern quality management methods from the firm’s inception with the aim of delivering a consistently high standard of service that can be adapted to match the client’s expectations. As a result … (the firm) has topped the independent league tables for healthcare or clinical negligence law every year since 1993.”

In addition to his work at the law firm, Mr Capstick has published extensively in many medical journals.  He has also designed software to enable doctors to learn from clinical negligence claims.  That software, now called DATIX, is used by more than 400 National Health Service hospitals in the UK.

In the US, there’s Christopher Marston, a 2004 graduate of Suffolk law school in Boston. In January 2006, he launched Exemplar Partners, LLC.  The 9 person firm bills all of its work on a fixed fee basis.  It offers its clients a satisfaction guarantee.  All of its lawyers have backgrounds in business as well as law.  In fact, the chief operating officer comes to the firm with 34 years of experience as a banker.  This law firm bills itself as in the business of solving clients’ business problems, not solely providing legal advice.

Chris Marston of Exemplar Partners LLC

What’s been unusual in my research on legal innovation is how rare these stories are.  With more than 50,000 law firms in the US, we might expect to see some small number resembling Exemplar Partners, distinguishing themselves with innovative structures or approaches. Yet this kind of variety appears to be lacking. 

“It’s unusual for a law firm to go out in the world to try and identify what’s new and interesting.  The question: ‘how can we deliver services more effectively?’ doesn’t get asked in very many law firms.”

Legal Services consultant, July 06

Because of the hourly billing structure, improved effectiveness is very bad for business – it reduces revenues and gross profits.  If a lawyer is more effective, she bills fewer hours to deliver the same result.

Thus, there may be very few economically valuable innovations for law firms to undertake.  As Jane Linder, the Director of Research at Accenture’s Institute for High Performance Business, noted in a response to last week’s ICE Update:

“Perhaps there IS no competitively valuable innovation. Otherwise, someone would be doing it.  Either that, or there are such poor market dynamics that there is no effective competition.”  

Jane Linder, 1 Aug 2006

          There are certainly a number of approaches that could improve law firm operations.  Here are a few that come from the interviews I’ve been conducting researching legal innovation.   

A number of interviewees suggested changes to “up or out” policies or the emergence of part-time lawyer positions.    The prospect of moving to “fixed fee” billing has been a potential innovation for well over a decade, without gaining much traction.

Changes in office layout are appealing to many of the executives who run law firm operations.  Office space is between 12 and 15 percent of most firms’ operating costs, and an increasingly mobile workforce means that more of a law firm’s space is empty for more of the time.  So we might expect to see some new office designs over the next decade. 

On their own, however, there aren’t too many prospects for law firms to be making major improvements – for most, business is too good and change is too risky. For more significant kinds of innovation, we’d need to see a more active and demanding set of corporate clients. 

“Our clients drive the pace and nature of our innovations.  When clients wanted fixed fee billings, for example, we were able to oblige.  Lately, though, our clients have not been interested in these new approaches.  They want to be able to monitor the hours we spend on their matters, and they want to negotiate a discount on the hourly rates.”

Chief Operating Officer of a mid-size law firm, July 06

A whole range of significant innovations depend on the willingness of a law firm’s clients to try new approaches.  Evidence from other professional service industries, as well as from law firms themselves, suggests that they will increase their pace of innovation when their clients begin asking them for new kinds of services.

More Information:

1.                              Last week’s update on innovation in US law firms is here.

2.                              The Exemplar website is here.  I also relied on an article written by David Maister on Exemplar, which will be published on 15 Aug 2006 in InnnovAction Magazine, from the College of Law Practice Management.  Their website is here.

3.                              Financial Times 2006 report on Law firm innovation is here.

4.                              Information on Brian Capstick is here.