Law Firm 2.0 – What might the future of law firms look like?

In my continuing Law Firm 2.0 series, today I ask the question: So what will the future of the law firm look like, especially if the status quo situation remains?

Here are some predictions.

First, the continued splintering of the relationship between the client and the firm will splinter in ways that will minimize their involvement over time. Lawyers who really want to practice in the traditional start-up ecosystem and function as true outside general counsels may be forced to leave their large firms and create and / or join smaller, boutique firms with radically different cost structures. I think that as clients use their lawyers less they will begin to see legal services as a commodity, a prediction also made by Richard Susskind.

Second, there is an argument that legal services will become all the more compartmentalized. One can imagine separate, smaller firms whereby one or two areas of law are practiced. Maybe there will be firms that just specialize in venture financings, for instance. This was actually an idea that I wrote a small business plan on back in 1999. Even before the recession, I received several calls from senior associates and / or junior partners claiming that they are thinking of breaking off on their own with similar folks at other firms to create start-up boutique firms, so that they can practice their craft without the same billing rate pressures.

Third, costs, compensation transparency and quality of life issues must be addressed, otherwise law firms will continue to throw dollars at associates to get them to put up with the current state of affairs. And in throwing dollars at the problem without fixing the real issues, those costs will be passed onto their clients.

Fourth, outsourcing will occur. Whether it is offshore, or simply somewhere other than the home office, the associated cost reductions with outsourcing can’t be ignored.

Fifth, I think the billable hour will, eventually, for most areas go away. Legal services will start to look like other services with fixed fees. The Washington Post has a great article with the quote “The economic crisis is giving the prosecution a boost in the case of Fixed Fee v. Billable Hours.” Even a presiding partner at Cravath, Evan Chesler argues for the death of the billable hour.

Sixth, technology will drastically change the way that lawyers work. I can’t begin to explain it as eloquently as Richard Susskind, but technology will end some lawyers’ careers while enhancing others. Lawyers had to be drug kicking and screaming into the email and word processing world (and for God’s sake who still uses Word Perfect? Argh) and will now have to adapt to social media and “always-on” connectivity. Furthermore, lawyers who can use technology to enhance their practices will prosper, while others will be replaced by it. I personally think that document automation platforms will be very important in the future and is why we invested in FirstDocs. We saw technology change the way discovery was performed by our successful investment in Stratify.

So what could Law Firm 2.0 look like? Who knows, but here are some early candidates of firms already doing things very differently:

One is Axiom Legal. In a nutshell they’ve used the professional consultant business model (and corresponding cost structure) and employee former big firm lawyers and experienced in-house counsel that charge half the rate. From what I know, all of their lawyers are 8-10 years or more experienced and charge what junior associates charge at some firms. They are venture backed and are hitting the cover off the ball from what I have heard. I wish that I was in the deal.

Second, I received an email from a “large but not particularly well known firm with offices throughout the southeastern United States.” They have a model of having offices in many non-traditional U.S. cities where work can be farmed out. In the words of a lawyer there with a sophisticate, international practice, he said:

“Most of us choose to work in cities where the cost of living is lower.  That means our salaries and draws are lower, but our hourly rates are also lower.  We can out-source work from our higher priced cities, for example, Washington, where I am, by sending labor-intensive work such as document review and due diligence, to talented and motivated lawyers in, for example, Memphis, Tennessee, and Jackson, Mississippi.  Our expectation of billable hours for lawyers at all levels is considerably lower than that of other large law firms.  As a result our lawyers are fresher, happier, and more likely to stay out our firm longer.”

Third, Craig Johnson, former founder of Venture Law Group, has created a new virtual law firm, aptly named Virtual Law Partners. This looks to be a hybrid model between Axiom and a traditional law firm, but is certainly interesting. Their name says it all – forget the expensive real estate plays and hire your lawyers virtually.

I also had the pleasure of recently reconnecting with an old Cooley alum and his partner: Raj Jha and Todd Smithline. They are primarily an IP / Licensing firm, but use a subscription model to bill their clients instead of the well-worn hourly model

Or maybe all of this is wrong, the traditional law firm will adapt and morph and create its own Law Firm 2.0 vision, one far better than invented by a guy who has been outside of firm life for the greater part of a decade (but I doubt it). The one thing that I do know is that there will be change.