The New Normal: What’s Already Different and What’s Ahead

William HendersonProfessor, Indiana University Maurer School of LawChief Strategy Officer, Lawyer Metrics

July 20, 2016Oregon State Bar Center

Tigard, OR

1997 Dodge Caravan

2003 VW Passat

2014 Honda Accord

Agenda

I. Profession or a guild?

II. Change we haven’t noticed

III. Change we don’t control

IV. Change by type of client

V. How innovation diffuses

I. Profession or guild?

The Enterprise (circa 1814) The New Orleans (circa 1812)

Life on the MississippiTimeline of River Pilot Profession

T1: US Inspector issued license

T2: Too many pilots → Low wages

T3: Collective action, BPA, still too many pilots

T4: Demand outstrips supply, BPA uses market

power

T5: BPA Cairo box system, makes

travel safer

T6: Insurers demand BPA

Pilots

T7: Rent-seeking with owners,

captains

T8: Railroads, civil war, BPA

corruption, collapse

II. Change we haven’t noticed

Source: Marc Galanter, Planet of the APs, 53 Buff. L. Rev. (2006)

Expenditures on Legal Services as Percent of Gross Domestic Product, 1978 to 2003

Source: NALP, charts generated by William Henderson

0%

10%

20%

30%

40%

50%

60%

70%

Percentage of Entry Level Jobs in Private Practice

% of Entry Level Jobs in Private Practice 2-Year Moving Average

Bar Passage Required Jobs

77%

57%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

2000 2013

% Partners and Associates in the NLJ 250, 1977-2012

36%26%

19%13%

52%64%

70%74%

12% 10% 11% 13%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1980 1991 2000 2005

Less than 35. 35 to 64 65 or older

Demographics of Licensed Bar

III. Change we don’t control

HEINZ-LAUMANN “TWO-HEMISPHERE” THEORY

People Organizations

1975

1995

People Organizations

Bespoke Standardized Systematized Packaged Commoditized

Needed human capital:• Information technology• Systems engineering• Finance• Marketing• Project Management• Law

SUSSKIND’S FIVE STAGES OF EVOLUTION

Bespoke Standardized Systematized Productized Commoditized

Susskind ‘s Market Evolution

“Tw

o-H

emis

pher

es”

X

YIn

divi

dual

sSm

all

Busi

ness

esR

egio

nal

Busi

ness

esN

atio

nal

Busi

ness

esG

loba

l Bu

sine

sses

Artisan Guild

BigLaw

Criminal Defense /

Public Defenders

Regional Law Firms

Solo & Small Firms

EMERGING LEGAL ECOSYSTEM

Bespoke Standardized Systematized Productized Commoditized

Susskind ‘s Market Evolution

“Tw

o-H

emis

pher

es”

X

YIn

divi

dual

sSm

all

Busi

ness

esR

egio

nal

Busi

ness

esN

atio

nal

Busi

ness

esG

loba

l Bu

sine

sses

Artisan Guild

BigLaw

Criminal Defense /

Public Defenders

Regional Law Firms

Solo & Small Firms

Multidisciplinary Teams

Green Zone – growing

LeanLawe.g.,

Seyfarth

NewLaw – e.g. Axiom, Counsel on Call, United

Lex

e-Discovery Vendors

Legal Publishers e.g., LegalZoom, Rocket Lawyer

PeopleLaw – e.g., Modria, Avvo, Legal

Force

In-House Vertical Integration

TechLawKM &

Analytics Vendors

E.g., kCura,Recommind,

PLC

Low Cost Provider

EMERGING LEGAL ECOSYSTEM

Individuals

N = 323 million

Individuals

N = 323 million

Organizations

N= 6.5 million

Small Businesses (<$50M)

N = 6 million

Large Private Businesses (>$50M)

N =33,000

Publicly Held not Fortune 500

N = 6,500

Fortune 500

N = 500

$0 $50 $100 $150 $200 $250$289 Billion US Legal Market

$11,000 $2M $7M $60M

Average client legal spend

$250

Individuals

N = 323 million

Individuals

N = 323 million

Organizations

N= 6.5 million

Small Businesses (<$50M)

N = 6 million

Large Private Businesses (>$50M)

N =33,000

Publicly Held not Fortune 500

N = 6,500

Fortune 500

N = 500

$0 $50 $100 $150 $200 $250$289 Billion US Legal Market

$13,300 $2M $7M $60M

Average client legal spend

$214

IV. Change by Type of Client

2007 2012

% of Law Office Revenue by Type of Client

Source: US Census Bureau Economic Survey (2007, 2012)

Hyatt Legal Services and the Storefront Revolution

Legal Complexity

1986 2016 2046

Experience and Perception

Economic Growth

Growth Complexity Tradeoff

1986 2016 2046

Reality

Experience and Perception

Economic Growth

Search for substitutes to deal with cost and quality

Reality

Rise of the Large Firms

Higher profits

Growth Complexity Tradeoff

Legal Complexity

Data, process, technology

Division of labor, specialization

Legal Complexity

Reality

1986 2016 2046

Experience and Perception

Economic Growth

Reality

Growth Complexity Tradeoff

Sources of Corporate Legal Work

In-House• Counsel to C-suite• Counsel to bus. units• Project leadership• Core legal work• Risk management

Law Firms• Strategy / Direction• High-level counsel• Specific expertise• Litigation and trials• Large transactions

Managed Services

In-House• Counsel to C-suite• Counsel to bus. units• Project leadership• Core legal work• Risk management

Law Firms• Strategy / Direction• High-level counsel• Specific expertise• Litigation and trials• Large transactions

Managed Services• Process centered• High volume• Project managed• Team-based• Metrics• Cont. improvement

Sources of Corporate Legal Work

Key Ethics Rules that affect non-legal professions in the legal industry

• Rule 5.4. Professional Independence of a Lawyer

• Rule 5.5. Unauthorized Practice of Law; Multijurisdictional Practice of Law

• Rule 5.6. Restrictions on Rights to Practice

Legal Middle Market

V. How innovation diffuses

First Edition (1962) Fifth Edition (2003)Everett Rogers

Rogers Diffusion Curve

% of Farmers Hearing about Hybrid Seed Cornvs. Percentage Accepting, By Year

Source: Ryan, B., & Gross, N. C. (1943). The diffusion of hybrid seed corn in two Iowa communities. Rural Sociology 8:15-24.

Manufacturing Finance Medicine Consulting

Law

Percentage of Total Acreage Planted with Hybrid Seed

Source: “Hybrid Corn: An Explanation in the Economics of Technological Change” in Technology, Education, and Productivity (1988).

100%

50%

S-shapedadoption curve

(% of market adoption)

Legal Industry in

2016

Rogers Diffusion Curve

Variables Determining Rate of Adoption

Dependent Variable to Be Explained

Perceived Attributes of Innovation1. Relative Advantage2. Compatibility 3. Complexity 4. Trialability5. Observability

Type of Innovation-Decision1. Optional 2. Collective 3. Authority

Communication ChannelsIncreased by more and better mediums

Efforts of Change Agents Educational and promotional efforts

Nature of Social SystemE.g, traditional versus modern, isolated or interconnected to other systems

Rate of Adoption of Innovation

Adapted from Everett Rogers, Diffusion of Innovation Fig 6.1 (2003)

Variables Determining Rate of Adoption

Dependent Variable to Be Explained

Perceived Attributes of Innovation1. Relative Advantage2. Compatibility 3. Complexity 4. Trialability5. Observability

Type of Innovation-Decision1. Optional 2. Collective 3. Authority

Communication ChannelsIncreased by more and better mediums

Efforts of Change Agents Educational and promotional efforts

Nature of Social SystemE.g, traditional versus modern, isolated or interconnected to other systems

Rate of Adoption of Innovation

Adapted from Everett Rogers, Diffusion of Innovation Fig 6.1 (2003)

“One of the easiest things in the world is to say ‘no’ to change; one of the hardest, to provide for its reasoned and orderly occurrence.”

-- Herman B WellsPresident of Indiana University

Bar LeadershipArea of focus Example

1. Promoting our core mission to serve the public interest

Emphasizing ingenuity and collective action as the road to prosperity (i.e., we need another Cairo Box system). Think capital campaign.

2. Gathering useful facts

Standardized surveys across US legal profession to so identify both regional and national issues and trends to create a single lexicon on profession; share results freely.

3. Sharing innovationLocal and state innovation awards that feed into a national competition (everyone needs to see the better corn).

4. Quality control Standardized training program for using technology in the modern practice of law; taught in every law school for credit.

5. Your ideas

Discussion and Q&A