ABA Journal

The New Normal

Law firm failure—the good kind

By D. Casey Flaherty

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D. Casey Flaherty

D. Casey Flaherty.

Everything is obvious once you know the answer. Humans excel at recognizing after-the-fact inevitability. We reconstruct a logical chain of causation that seems to suggest the outcome was predictable. Yet, we are terrible at actual prediction because even when we can successfully separate the signal from the noise—no small feat—we are still only left with probabilities, not certainties.

Ours is an environment where 90 percent of startups vanish quickly and nearly 94 percent of large-scale IT projects are unsuccessful. The failure rate is so high that the cynics are almost always right. Except when they aren’t.

Because the only thing we know for sure about the future is that it will be different. And it will be different because someone is out there right now working on something that will change the way we operate. The problem is separating the substance from the hype and then being lucky enough to back the right horses.

These posts began because Thomson Reuters hosted a panel on their work with IBM’s Watson, a prime contender for what’s next. That, in and of itself, was enough to intrigue me. But the subject matter on which their Watson installation is directed also proved to be of substantial interest. Watson will “learn” about the global regulatory landscape and be deployed to identify which organizational activities may be subject to which regulations in which jurisdictions. Big Data will meet Big Compliance.

Compliance is a nightmare that keeps getting worse for boards of directors and their lawyers. The regulatory thicket, especially as you cross international borders, is so dense. Many companies are flying blind. Even the most proactive companies find it nearly impossible to track all the changes from all the agencies at the municipal, county, state, federal, and international level that regulate aspects of their operations. These include regulations that are far afield from the company’s core business. Think about the T-shirt company that needs to concern itself with data privacy, tax withholdings on payments to vendors in foreign jurisdictions, and the sourcing practices of its suppliers. The situation is not conducive to lawyer sanity—hoping the thing you don’t know about isn’t a problem. Yet thus far it is also not that great a boon to lawyer employment because deploying an army of lawyers to maintain, let alone interpret and apply, up-to-date regulatory mapping is cost-prohibitive.

In theory, technology could go a long way toward solving this information problem. But which technology? Watson is a sexy candidate. But it is not the only option. Indeed, I was surprised to hear Thomson Reuters’ Eric Laughlin refer to regulatory mapping when discussing Watson because he heads a division that just announced a different regulatory mapping project in November. That project is spearheaded by Akerman, an Am Law 100 firm, in partnership with Thomson Reuters’ Legal Managed Services arm (Panagea3) and Neota Logic, an expert-system technology. Thomson Reuters’ Watson project sounds very much like the Akerman Data Law Center because it is.

Because prediction is hard, Thomson Reuters is making a portfolio play with the understanding that some of its bets will pay off and some won’t. Diversifying is smart but unremarkable for such a large enterprise. What excites me, however, is that Akerman is doing the same thing. A large law firm is selling something other than lawyer hours. The Akerman Data Law Center is a subscription-based service that is as much about process (P3) and technology (Neota) as it is about the domain expertise of the lawyers running it. Akerman supplies the legal judgment. P3 supplies the labor and process. Neota supplies the technology, structure, and user interface. Together, they offer something that none of them could contemplate on their own. The co-head of Data Law Center, Martin Tully, anticipates that subscribers will be able to answer about 80 percent of their inquiries using the system while the remaining 20 percent will warrant tailored legal advice.

It sounds great. It might work. It might not. Akerman accepts the possibility of failure. In this stellar video for the launch of their R&D Council, the firm expressly acknowledges that some ideas “will crash and burn and that’s OK because anyone who has never made a mistake has never tried anything new.”

This embrace of experimentalism runs counter to the atelophobia—the fear of imperfection—that is so common in law. Legal practice has a small margin for error. Innovation is different. Innovation is inherently messy.

It’s easy (and accurate) to pick on lawyers for Luddism, especially when they agglomerate in BigLaw. But Akerman’s R&D Council is one of many bright spots in the BigLaw firmament. From Dentons’ NextLaw Labs to SeyfarthLean to an increasingly long list of law firms combining legal expertise with business process and technology to create saleable products that go beyond billable hours, there are real attempts at innovation even in what has been considered the most conservative corner of the legal ecosystem. (Disclosure: The author is on the board of advisors of NextLaw Labs).

These developments are critical. People remain essential to people, process, and technology. And large law firms continue to have the highest concentration of intellectual capital (trained people) and fiscal resources for investment (in process and technology). There are good reasons why large law firms should be primary drivers of innovation in the legal marketplace. Then again, there are good reasons why many are not. Part of the case against law firm innovation is the open question of whether clients will reward innovative firms with a return on investment. More on that in my next post.

D. Casey Flaherty is the founder of the legal tech consultancy Procertas, provider of the Legal Tech Assessment. He was a 2013 ABA Legal Rebel. He also serves on the board of advisors of NextLaw Labs.

Editor’s note: The New Normal is an ongoing discussion between Paul Lippe, the CEO of Legal OnRamp, Patrick Lamb, founding member of Valorem Law Group and their guests. New Normal contributors spend a lot of time thinking, writing and speaking about the changes occurring in the delivery of legal services. You’re invited to join their discussion.

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