The Role of Professional Development Professionals for a Changing Legal Profession

1. The Role of Professional Development Professionals for aChanging Legal Profession Michael Downey

2. From 1979-2007,What Made a Law Firm Great?

3. Legal Services

4. Old Math • “RULERS”  Profits • R ates • U tilization • L everage • E xpenses • R ealization • S peed (of billing/collection)

5. R-U-L-E (plus R & S) Rate = Slope of Line Leverage = How many triangles per partner? Break Even Point 1500 hours Profits Salary & Benefits Expenses Overhead Utilization = hours billed Rate – $200 per hour Overhead – $140,000 Salary & Benefits – $160,0000

6. Leverage

7. Old Career Path for Lawyers • Associate (Non-Equity Partner) (Equity) Partner

8. Upstairs/Downstairs • Law firms are employing – and maximizing the use – of lots of professionals other than lawyers • Many firms are slow to appreciate and respect the contributions these professionals provide

9. “Professional services are in a disruptive stage of their life cycle.” • – George Beaton

10. Really?

11. Strength of Market • Thompson Reuters PMI index shows improvement over last three quarters • But factors of firm performance still show considerable weakness and reason for concern

12. 2000 deals in 2007 • 500 deals in 2012

13. Utilization – Billable Hours • Partner and associate billable hours remain soft (and low) • Firms should look to see that partners are not hoarding work • Soft/low billable hours may cause associates (in particular) to focus on billable work, instead of training et al.

14. Realizations • Firms are writing off more time – and having more trouble collecting the time they are billing • Result is that lawyers are working for free

16. Suppliers • Number of lawyers finding full time legal employment has dropped precipitously in recent years • This will keep associates in place, at least temporarily, even if they are no happy

17. Decrease of Supply • Individuals taking the LSAT has also declined in recent years • Decrease from approximately 60K in 2009 to • only about 35K in 2013 • Most law schools are feeling a traumatic impact due to the decrease of law students

18. Substitutes

22. Buyers’ (Clients’) Power

23. Clients have – and are using – considerable power • Consolidation of legal work • ACC Value Challenge • Team activities – like Pfizer Legal Alliance

24. Procurement(Requests for Proposals) • Only 12% chance of winning . . . if the law firm did not draft the RFP (BTI)

25. New Entrants

26. Growth of the “Global” Firms • Not just US-based or UK-based firms • Dacheng is now the #3 largest firm in the year (but 97% of its lawyers are in China)

27. Growth of Alternative Legal Service Providers • LPO market grew 31% from 2011-12

29. Intra-Industry Competition

30. Firms compete • . . . For rainmakers • . . . For associates in certain practices

32. Summary – Susskind • Three forces • Globalization • Liberalization • Information technology • Two viable strategies • Efficiency strategy • Collaboration strategy

33. What Are We Trying to Develop?

34. Old Paradigm – “Cravath” System

35. Breakdown of the Old • Turnover – Associate departures • Decline of Equity Partners (Am Law 200) • 36% of total in 2000 • 34% of total in 2005 • 25% of total in 2011

36. New Paradigm • ?

37. Barlett Beck • No hourly fees, • no leverage, • no laterals. • (or should we discuss Wachtell Lipton or Valorem?)

38. Several Questions • Does a law firm really need “associates”? • Does a law firm really need an “office”? • Does a law firm really need “rainmakers”?

39. Summary – Susskind • Three forces • Globalization • Liberalization • Information technology • Two viable strategies • Efficiency strategy • Collaboration strategy

40. Disrupting or Sustaining Innovation?

41. Importance of Disrupting/Sustaining Innovation • Incumbents often prevail when innovations are “sustaining” (evolutionary or even revolutionary) • Usually upstarts will win if the situation is really disruptive • Clay Christensen, The Innovator’s Solution

42. Decrease of Supply • Individuals taking the LSAT has also declined in recent years • Decrease from approximately 60K in 2009 to • only about 35K in 2013 • Most law schools are feeling a traumatic impact due to the decrease of law students

43. Skills to Develop • Teamwork • Collaboration • Listening • Networking • Presenting • Communicating • Technological Acumen • Project and process management • Plus the old necessities – technical skills, knowledge of client industries, confidence, bravery

44. “[T]he successful lawyer must ‘know the life of the community, the needs and practices of his client, ... the working situation which he is called upon to shape as well as the law with reference to which he is called upon to shape it.” • – Karl Llewellyn (1893-1962)

45. Traits Firms Need • Innovative • Risk-taking • Tolerant of diversity • Lean/efficient (but not cheap) • Business-minded • Client focused

46. Consumption v. Investment?

47. Why Will People Stay? • Platform: What’s the brand name, how good are the associates, what’s your position in the practice group • Culture: Is it a fit? • Financial issues: The obvious. Not just current pay, but capital contributions, pensions, etc. • Security: A steady stream of work • Friendships. These can keep people at, or keep them out of, firms • – Adam Smith, Esq.

48. Where Are Law Schools? • Many law schools doing many good things • Iron Tech Lawyer (Georgetown app competition) • Reinvent Law (Michigan State) • Institute for Law Practice Technology and Innovation (Suffolk) • Law Without Walls (Miami – recommended by attendee)

50. Closing Thought • Real risk of disruptive innovation in legal services • Deliverables, not delivery, will change