Law’s Emerging Elite – Enterprise Legal Service Providers

– Part 1

Anyone familiar with the legal industry can tick off the names of its elite law firms. They have distanced themselves from other firms by their demonstrated differentiated practice expertise essential in high-value legal practice matters. Legal acumen has long been the standard of excellence in law.

Escalating demands on corporate legal consumers to “do more with less” have raised their expectations and performance bars to levels that even elite law firms cannot wholly satisfy. Leading corporate legal departments need much more than top-tier legal expertise; they also require a new class of providers with scale, substantial capital, and an ability to integrate legal, business, and technological expertise backed by a seamless global infrastructure to tackle sophisticated, high-value business challenges.

The barriers to entry for a professional services company to play in this space are exceedingly high. For example, ELS providers typically achieve a half-billion or more in annual revenue and have access to significant capital to structure mega-deals that shift financial outcomes and execution risk from buyer to provider. They deliver sophisticated, agile, scalable, financially-flexible and customer-centric services tailored to the pressing needs of leading global corporations. These are early days for ELS providers, but their impact is already jaw-dropping. They are law’s new elite.

The legal establishment classifies all non-traditional law firm providers as “Alternative Legal Service Providers” (ALSP’s)  The “alternative” moniker implies marginalized status and evidences the profession’s hubris and “lawyers and ‘non-lawyers’” worldview. Law has long been controlled by lawyers that have forged its insular culture, monolithic structural and economic models, standards, regulation, and language. That was when law was solely about legal knowledge and legal delivery was synonymous with practice. It’s a new ballgame now. Legal services are whatever clients need to solve complex business challenges. Legal departments and law firms are neither prepared nor equipped to meet these urgent and formidable challenges. This is where a handful of ELS providers come in.

Gartner reports that only 19% of in-house legal teams are well-prepared to support enterprise digital transformation. A recent KPMG survey confirms digital transformation is a key strategic priority for CEO’s. It is also time sensitive—85% of enterprise decision makers think they have a two-year timeframe to make significant inroads on their digital transformation before sustaining adverse financial impact and/or lagging the competition.  McKinsey reveals the high stakes of digital transformation– data-driven organizations are 23 times more likely to acquire customers; six times as likely to retain customers; and 19 times as likely to be profitable as a result.

It is against this backdrop that the enterprise legal service providers’ unique role and impactful contribution to in-house legal teams and corporations should be evaluated. Many in the legal establishment are unaware of this potent new market force. They cling to their known universe of elite law firms and are content to lump all non-law firm providers as “alternatives.” Progressive in-house legal teams know better and will attest to the “elite” capabilities, scale, and sophistication and results ELS providers produce.

A handful of enterprise legal services (ELS) providers have reimagined the legal services delivery models as well as the provider-buyer relationship. They deliver business impact beyond buyers’ legal departments throughout the entire enterprise, manage risk, and produce significant cost reduction and efficiency. Several of the world’s largest, most sophisticated corporate legal departments are already ELS customers and entrust mission-critical functions to them.

The legal establishment has yet to classify—much less accord appropriate status–to ELS providers. This is emblematic of the profession’s stubborn insistence that law still revolves around lawyers and firms. This may be the world according to lawyers, but it’s not the way corporate legal buyers see it. Differentiated legal expertise is still prized, but buyers– not lawyers– now determine its parameters. Differentiated business of law capability is equally important. The profession’s marginalization of these providers ignores their rapidly escalating market share, ascent up the complexity chain,  and increasing importance.

Lawyers See The Industry Through Their Own Lens

Law has long been a hierarchical, pedigree-enamored, insular profession. It has its own idiosyncratic language, homogeneous culture, and self-reinforcing measures of excellence preserved over many decades. The profession still views the industry through its own lens and defines it in its own terms and by its own standards, not from the perspective of clients and society.

It’s no surprise, then, that lawyers recognize “elite” law firms but scoff at conferring similar status to legal service providers that do not adhere to their paradigm. To ask “why?” is to explore law’s transition from a profession that, until recently, sold legal knowledge to a global, multidisciplinary industry with a new breed of providers that operate at the intersection of law, technology, and business.

Lawyers still control the industry discourse— trade publications, conferences, and “legal innovation” award banquets. The legal establishment might still hold the reins of media and their lawyer subscriber/sponsors, but, like the American Bar Association, its influence is waning. What matters now is satisfying the changing demands of legal consumers. Elite law firms are one source; elite enterprise service providers are another.

The Thinned Herd of Elite Law Firms

 Until the late 1980s approximately 250 law firms could credibly claim elite status. Firm finances were confidential—sometimes intramurally among partners. Firms touted their “bespoke” work and top-notch legal talent, and the differentiation among them was not as important as the similarities. Legal expertise was synonymous with legal delivery, and law firms had a virtual monopoly on supply and demand. Their monolithic organizational and economic models propelled the myth of legal exceptionalism. Law was—in the eyes of lawyers—an elite profession that was maintained by lawyers setting rules, self-regulating, and preventing “outside” competition.

Steve Brill, the Founder of The American Lawyer, forever changed the legal industry in 1986 when he published the inaugural American Lawyer 100. Brill raised the curtain on law firm finances, elevating profit-per-partner—“PPP”– into an acronym every lawyer soon knew. The clubby collegiality long associated with law firms was replaced by financial competition and a new-found focus on top and bottom lines.

PPP became the Holy Grail of law firms and cast a bright light on the business side of the profession. Firm profitability became a magnet for lawyers intent on “moving up” and a destabilizer for an underperforming firm’s ability to retain them. “Laterals” quickly became a new partner category and law’s version of big-dollar free-agents. Last year, large firms promoted more laterals to equity partnership than internal inductees.

What Are The Common Characteristics of Today’s “Elite” Law Firms?

If PPP is the ultimate yardstick by which elite status is measured, what enables firms to achieve and maintain it? The common threads are (1) differentiated skills and expertise in one or more practice areas; (2) high-value engagements; (3) brand recognition; and (4) financial ability to attract and retain key talent. Elite firms operate in a rarified market segment; they are in a league of their own among practice-centric legal service providers.

There is a growing financial divide between approximately twenty firms and all the rest. The separation is the byproduct of unequal impact of marketplace changes from which elite firms are generally immune. This includes: (1) disaggregation; (2) technological advances that have eroded law’s labor-intensive approach to problem-solving; (3) products substituting for services; (4) stepped-up in-house expertise and capacity; (5) tech and process-savvy legal providers focused on “the business of law”; (6) more sophisticated legal buyers; (7) consumer demand for holistic, multidisciplinary solutions to business challenges (of which legal issues are one of several prongs); (8) enhanced competition—among firms as well as with in-house departments and other providers; (9) the growing significance of differentiation—with other firms as well as corporate departments and other departments; and (10) consumer portfolio segmentation by value, complexity, qualified resources, cost, and track record.

Elite law firms are the last bastion of the traditional practice-centric legal providers. They are thriving even as law firm demand remains flat in a hot market for legal services. This is emblematic of a larger market shift, one that demands something more than even top-tier firms can deliver. The narrow perspective of legal services that lawyers created is being replaced by customer demand for solutions that require legal acumen but also demand much more.

Conclusion

Legal delivery is entering a “post-practice” era. Differentiated legal expertise will continue to be prized, but so too will other expertise—notably an ability to identify and manage problems before they metastasize, mine data for internal and client-facing purposes, use artificial intelligence and other technologies to compress delivery time and predict outcomes, and expand the impact of “legal” services beyond the law department throughout the enterprises.

Multidisciplinary, sophisticated, efficient, cost-effective, scalable, agile, holistic, and needle-moving solutions are not the stuff that even elite law firms are made of, much less other firms. It’s time that the legal profession looks beyond its self-created success and value parameters and view things from the consumer perspective. Corporate legal consumers require expertise, delivery capability, and flexibility-creating provider capital that even elite law firms cannot offer on a stand-alone basis. That’s why ELS providers join a thinned herd of law firms as the legal industry’s elite providers.

Enterprise legal service providers–analyzed in greater detail in the article that follows– may remain “alternative providers” in the eyes of the legal establishment, but leading corporate consumers have an altogether different take.

Originally published in Forbes.

Avatar
Mark A. Cohenhttp://legalmosaic.com/
MARK has had a long and distinguished career as a lawyer and innovator in the legal vertical. His unique perspective on the legal industry is derived from roles he has had as an internationally recognized civil trial lawyer, legal entrepreneur, early large-scale adopter of technology for the delivery of legal services, partner at one of the largest law firms, founder and managing partner of a national litigation boutique firm, outside General Counsel, federally appointed Receiver of a large, international aviation parts business with operations on four continents, (Adjunct) Distinguished Lecturer of Law at Georgetown University Law Center, writer, speaker, and acknowledged global thought leader at the intersection of law, business, and technology. Mark currently serves as CEO of Legalmosaic, a company that provides strategic consulting to service providers, consumers, investors, educators, and new entrants into the legal vertical. Prior to founding Legalmosaic, Mark was Co-Founder of Clearspire, a groundbreaking legal service provider whose disruptive, proprietary IT platform and reengineered legal model garnered international acclaim. This followed his founding of Qualitas,an early entrant into the LPO space. Earlier in his career, Mark was an internationally recognized civil trial lawyer. He was an award-winning Assistant U.S. Attorney and the youngest partner of Finley Kumble prior to founding his own multi-city litigation boutique firm. Mark is widely known for his blogging and speaking on a range of legal topics focused on changes, challenges, and opportunities in the current legal landscape. Mark maintains an active speaking scheduled, both domestic and international. He has been a keynote speaker at Harvard Law School’s Speaker Series, Reinvent Law, 3M’s Global Legal Alignment Summit, LegalZoom, University College London, and, in May 2017, The German Bar Association’s Annual Conference. He writes a weekly column for Forbes and has been published in major legal and business media sources around the globe. Mark has been active in sports and the arts throughout his life, and this is reflected in his writing and speaking on legal issues where he frequently makes references to those topics. He enjoys mentoring students and young lawyers and is known for his colorful sense of humor and candor.
avatar
  Subscribe  
Notify of

REAL PEOPLE

Powerful voices from around the globe that speak to our shared human experience. May they inspire you and give you great hope.

JUST 1 CLICK

IS ALL IT TAKES TO LEARN SOMETHING NEW TODAY

Must Read

JUST 1 CLICK

IS ALL IT TAKES TO BEGIN ENJOYING OUR PODCASTS

JUST 1 CLICK

IS ALL IT TAKES TO EXPLORE OUR INSPIRING GLOBAL COMMUNITIES

Email List Login