The Changing Business of Law

Mark Chandler does not shy away from controversy easily. The general counsel of Cisco Systems created a furor earlier this year by asserting in a widely discussed speech that the billable-hours system of major law firms is outmoded and that online technology, of the kind his company sells, will make lawyering an ever-less-expensive proposition. Chandler ’81 acknowledges that his opinions have made him a scourge to some and a prophet to others. But like him or not, his assertions are making headlines and are already a reality in some companies today. • Law firms are under increasing pressure to produce more for less. To achieve this, everything is on the table including outsourcing and automation of key business processes. At the same time, demand for legal expertise in today’s complex business environment has heated up competition for talent in the job market—with graduates from top-tier law schools reaping the financial benefits of that competition. • But these same associates are complaining about crushing workloads, poor job satisfaction, and diminished long-term career prospects. And with pressures on legal fees from corporate clients such as Cisco, it is not clear how long firms will be able to bill out at current rates, some running from $450 to as high as $1,000 per hour. What is clear is that the business of law is evolving rapidly and that evolution is having both positive and negative effects, according to a variety of experts and practitioners.

The Changing of Business Law

A New Business Model? 

In January, Chandler spared no one in his “State of Technology in the Law” speech to the Northwestern Law’s 34th Annual Securities Regulation Institute. “The present system is leading to unhappy lawyers and unhappy clients,” he said. “The center will not hold.” He then added that the legal industry sometimes seems to be “the last vestige of the medieval guild system to survive into the 21st century.”

Chandler warned that legal departments like the one he runs are being managed as cost centers just like any other part of the corporation. The solution at Cisco is to negotiate a pertransaction fee with outside counsel, eschewing the traditional, often openended billable hours method. Chandler then leaves it to the law firm to decide how it stays within that limit and also makes a profit.

Such a deal is now in place with Fenwick & West, which is chaired by fellow Stanford Law graduate Gordon Davidson ’74 (BS ’70, MS ’71). Fenwick represents Cisco on its many mergers and acquisitions and has worked out an overall fee to cover a range of legal issues over a given period. Cisco never sees a billable hours sheet and Fenwick decides for itself how much manpower to throw into each project.

Both men profess to be happy with the arrangement, which they acknowledge is a testament to their willingness to be “flexible.” In other words, Cisco is not out to deprive its law firm of a reasonable return, and the firm is striving for cost savings. “It can’t be too rigid or it won’t work—either way,” Davidson says.

And Fenwick has found creative ways to save money, often using the types of Internet advances that Chandler proselytizes about. One of its young associates developed an Internet-based template for doing otherwise arduous and time-consuming due diligence work on Cisco’s acquisitions. The reports can be generated quickly and dissected in all sorts of useful ways not just by Fenwick lawyers but also by Cisco’s in-house executives and attorneys. Helping inhouse and outside counsel work together more efficiently is also the goal of Webbased platforms like Serengeti Law, founded by Rob Thomas ’78 and Tom Melling ’94, which enable law departments to process bills, budgets, status reports, and documents online. According to Thomas, Serengeti Tracker connects more than 11,000 in-house counsel (including Stanford’s law department) with more than 12,000 law firms in 125 countries worldwide.

“When outside counsel provides key information directly into an online management system for in-house clients, the clients become much more effective GRANT DELIN managers of legal services,” says Thomas. “For the first time, law departments see not only what they are spending but also the results achieved, cycle time, and other objective measures to identify best practices. This permits them to serve as the focal point for sharing work product and lessons learned with the multiple law firms who represent them.” Cisco is leading an effort to share that information through another online collaboration website called Legal OnRamp, which it initiated but is now co-developing with several companies. Conceived as a tool to leverage information and share best practices—it “provides content, connectivity, and execution services to help legal professionals deliver higher-quality work in less time and at lower cost,” according to its website. While still in development, the site has caught the attention of many in the legal profession and already boasts more than 500 members from law firms and legal departments alike.

“All around the periphery of the legal industry, standardization of information is happening,” Chandler says.

Outsourcing of standard legal work is also growing. Temp services and contract attorneys across the country—and some outside the country—are specializing in the oftentedious work, and corporations are eager to take advantage.

“In the last ten years there’s been an explosion in contract attorneys,” says William Baer ’75, a partner at Arnold & Porter and head of the firm’s antitrust group, regarding the trend.

Women In Law: A Changing Landscape?

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It’s clear that women want to be lawyers. At least they want to be lawyers when they enter law school. Each year, women comprise roughly half the total number of students entering and graduating from law schools. And according to an ABA report, approximately 44 percent of all firstyear associates are women. Yet by the time they begin their third year in practice, nearly half have departed their law firms. This attrition may explain, in part, why a recent NALP (The National Association for Law Placement) study found that women total only about 17 percent of those who make it to partnership, and also why the ABA reports that women comprise only 30 percent of all practicing attorneys.

What to do? Plenty, according to two groups of enterprising law students who recently joined forces to form one organization—Ms. JD—to spearhead this issue.

In March 2006, law students from Stanford, Cornell, the University of Chicago, Harvard, the University of Michigan, New York University, and Yale, among other schools, met to launch an online community, called Ms. JD, which offers ideas and tips about how women can better cope in the legal profession.

Much like Ms. JD, the Women’s Law School Coalition (WLSC) was formed to provide a clearinghouse for progressive suggestions on the profession. Co-founded in April 2007 by Stanford Law student Menaka Kalaskar ’09 and students from many of the same schools behind Ms. JD., the group was established as a reaction to a March 7 Washington Post article, “Harsh Words Die Hard on the Web,” which reported attacks against women law students on an anonymous Internet message board.

The two groups merged two months ago and will carry on the “Ms. JD” name. “Our missions were very much aligned, and for that reason both groups were excited to merge efforts into a single organization,” says Ms. JD president Elizabeth Pederson ’07, who notes that Ross Chanin ’09, also a founding member of WLSC, is now a Ms. JD board member.

Ms. JD is currently working to provide law students with more information about gender policies at places of employment. The Ms. JD network site, still in development but launched in beta, allows lawyers to register to mentor law students and new attorneys. These mentors offer firsthand accounts of their workplaces so that law students have more information prior to accepting employment offers.

The organization will also continue to develop use of its Internet discussion group so that members can exchange tips and network for jobs, according to Pederson.

Ms. JD’s advocacy efforts extend well beyond the Internet. This past summer the group offered scholarships to women working in public interest jobs. It also co-sponsored with Yale Law Women a national conference on women in the legal profession last March and is among the sponsors of an upcoming Women in Law Leadership Academy.

Stanford sponsored the Ms. JD founding conference and offered technical assistance to start the site and continues to be very supportive, Pederson says. “The retention and promotion of women affect the success of all lawyers in every aspect of practice, and it’s important to work together to find a better way to achieve sustainable gender equality within our profession. Just the process of coming together in a forum like Ms. JD to think about solutions and share different perspectives can create change in places of employment.”

Big-Firm Alternatives

While cost-saving pressures build, the demand for legal expertise is as strong as ever—and so too is the need for fresh legal talent. Associates joining major firms can now earn $160,000 a year plus substantial bonuses straight out of school, an income that automatically puts them into the top 10 percent of all Americans. While such affluence cannot be beaten in almost any other profession at such an early stage, there is a cost to success. Many associates at large firms see their salaries as golden handcuffs, enabling them to pay back student loans that often top $100,000 but shackling them to their work late into the night and on weekends. At the same time, large firms today have a steep pyramid management structure that makes the career path to partnership more uncertain than ever.

To be sure, many law firms are aware of the challenges and are actively working to retain associates through flexible work arrangements and other work/life balance initiatives, while continuing to steer them toward partnership. In fact, Baer’s firm, Arnold & Porter, is often cited as an example of such a firm, according to Susan Robinson, Stanford Law’s associate dean for career services.

That said, a growing number of businesses are offering an alternative to the traditional firm structure—and gaining ground as corporations are increasingly hiring non-law-firm lawyers to do higher-level duties as well.

Axiom Legal was started seven years ago as a response to pressure from corporate counsels to pay less for legal services and the demand by lawyers to exercise more control over their personal lives. Axiom saves money by having neither partners who expect huge salaries or profit sharing nor sprawling offices with high overhead—of the kind typical of big firms. Axiom Legal has a whole stable of lawyers, many with advanced skills, that it makes available as consultants in corporate offices at rates of about $150 an hour, a third of the fees typically charged by major law firms. Axiom’s lawyers (who are employees of the firm) are paid well for the actual work they do, though not extravagantly by lawfirm standards—upwards of $200,000 on average, plus benefits. In exchange, Axiom lawyers can say no to assignments that they do not want, a luxury law-firm attorneys do not have. Often, Axiom lawyers sprint through six to nine months of intense work and then take time off to pursue their personal interests.

“It’s really about self-determination and control, something you don’t have working in a firm,” says Kate Frucher ’00, who heads the firm’s New York operation. “Our attorneys get to decide what they work on but they also get a lot more variety than lawyers at law firms.”

Clients also get good service, she contends. For the allure of personal autonomy and a decent schedule has allowed Axiom and other companies like it to compete for seasoned associates from the major firms. Axiom is now interviewing 15 potential hires a week, Frucher says, and has 170 lawyers on staff around the country, up from 10 in 2000. Its annual revenue reached $31 million last year and its clients include Yahoo!, Google, Goldman Sachs, Morgan Stanley, American Express, and Honeywell. In addition to offices in New York and San Francisco, the company is in the process of opening a London branch.

“We saw a lot of really unhappy attorneys who were friends of ours and thought, ‘There’s got to be a way to make a happier home for people,’” says Axiom co-founder Alec Guettel (MBA ’97). “Also from the clients’ side there were no alternatives out there and the economics of law firms were so remarkably out of whack that they seemed unsustainable.”

The idea is catching on. According to the National Law Journal, other companies with a mission similar to Axiom’s include Atlanta-based FSB Corporate Counsel; San Jose, California-based GCA Law Partners; Minnetonka, Minnesota-based The General Counsel; and Houston, Texas-based Outsource GC.

Code X: Where Law and Technology Intersect

TECHNOLOGY HAS FUNDAMENTALLY TRANSFORMED many industries—from medicine to engineering. But change hasn’t come as quickly to the legal profession Joshua Walker, executive director of CodeX: Stanford Center for Computers and Law, puts it another way: “Lawyers have a duty—too long ignored—to employ technology more effectively and more innovatively.”

But things are shifting quickly, and that’s where CodeX comes in. CodeX is a multidisciplinary laboratory run by the School of Engineering and Stanford Law School. In collaboration with graduate students, practicing attorneys, government officials, and outside academic and industry experts, the center is pioneering the research and development of “legal informatics” applications. Simply put, it’s putting computer science to work on practical legal problems. In particular, the center is focused on methodologies and tools that make standard legal tasks—such as negotiating contracts, generating terms of use policies, or complying with tax regulations—easier and more accessible not just for lawyers, but for ordinary citizens.

“CodeX is an entirely unique collaboration of a kind that seems to happen only at Stanford University,” says Larry Kramer, Richard E. Lang Professor of Law and Dean. “It addresses one of the most critical issues facing the legal profession today—how to use technology to improve the delivery of legal services—by harnessing the strengths of Stanford’s law and engineering schools. Through CodeX, we can educate a generation of technology savvy lawyers and legally savvy engineers capable of revolutionizing the way law is practiced.”

One such collaboration is the Intellectual Property Exchange (IPX), a CodeX workshop focused on building an online platform that lets content creators enter into licenses, clear copyrights, and get compensation. Initially composed of a handful of Stanford Law students, the project evolved last year into a full-fledged, multidisciplinary course. SLS students examined legal feasibility issues, GSB students constructed business models, and computer science students grappled with how to build it. Together, they traveled to Los Angeles to meet with leaders at major studios, including Sony and Paramount, and attorneys from the entertainment practice of Greenberg Glusker, to debate the market viability of tools like IPX.

“CodeX is a nascent enterprise, still actively seeking partners,” says Walker. “But we’re already tackling problems that have plagued both attorneys and computer scientists for decades.” -Amy Poftak (BA ’95)

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Dealing with Information Overload

In today’s world of the Internet, the BlackBerry and instant messaging, lawyers are expected to be on call all the time. But they are also expected to do their homework—quickly.

Davidson notes that clients have often done their own legal-memo browsing on the Internet before they reach out for help, and so they demand an instant answer that goes beyond their already advanced knowledge.

“They expect you to have the next level of insight,” he says. “Because of the instant electronic availability of legal information and analysis, in some cases we’re starting behind rather than ahead of the client.”

Online advances have also spurred a massive increase in the sheer volume of available information and merely keeping up has become a burden. “There is a tremendous amount of information available now,” says Sean Johnston ’89, senior vice president and general counsel of Genentech. “Technology is leading to an information overload.”

As a result, lawyer-managers have a lot on their hands. Arnold & Porter’s Baer says he spends a great deal of time trying to figure out ways to make work less allconsuming for his colleagues, especially his overworked younger colleagues.

One secret, he says, is extensive use of technology—yes, the same technology that adds to lawyers’ grief. Video and audio conferencing have cut down travel, as have computer networking systems that allow lawyers in multiple locations to operate at the same time on the same set of documents.

Telecommuting is also being utilized on a grand scale around the country. A well-regarded in-house patent attorney for Genentech lives full time in suburban Virginia outside Washington, D.C., for family reasons, according to the biotech company’s Johnston. The company’s internal communications are so seamless, however, that it has sometimes taken months for the attorney’s in-house clients to figure out that she is not at headquarters in South San Francisco.

“There’s a limit because so much of legal practice involves face-to-face meetings. You couldn’t run an entire legal department of people telecommuting,” Johnston says. “But this instance is an unqualified success.”

Associate Burnout: Students Weigh In

If recent news reports are to be believed, no one would want to be a lawyer. According to ABA reports, record-breaking salary and bonus offers for top-tier law school graduates are still enough to lure them into working 60-plus-hour weeks for a few years. But many leave those demanding positions soon after. And fewer new graduates are joining firms to start.

While the profession is changing, so are the expectations of new lawyers with many demanding a more balanced life and less time in the office. In January, Andrew Canter ’08 and fellow Stanford Law student Craig Segall ’07 launched Law Students Building a Better Legal Profession to deal with this issue.

“We want to improve the quality of life at law firms,” Canter says. “It won’t be easy.”

The main hurdle, according to Canter, is “billable-hour escalation.” Law firms, especially the biggest and most prestigious, are under pressure to produce more billable time. The result, especially among associates, is often burnout. With associate attrition at many large law firms now touching 30 percent or more, Canter may be onto something.

Law firms also become losers in the process, Canter and Segall contend. Recruiting associates is an expensive, time-consuming task, they say, citing a recent Am Law 200 report that the cost of recruiting just one summer associate has hit $250,000. Being forced to repeat that process because of high turnover is a drain on any firm.

At least that’s their argument. As spokespeople for their organization, which now numbers 130 members and rising, they have been taking this pitch across the country to the law schools—and to the blogosphere. A posting on the Wall Street Journal Law Blog about the group elicited more than 125 user comments, many concerned about the direction of the legal profession.

Canter has also been taking his message to the firms themselves. He has had serious talks at Orrick, Herrington & Sutcliffe, for example, about trying to ease the burden on associates. But most of his efforts are directed at law students.

“We try to give law students reliable information about what’s going on,” he says.

Among the group’s proposed solutions: to reduce maximum billable hour expectations and, to the extent possible, replace the billable hour system with a flat fee per transaction method of payment to law firms. While optimistic, Canter concedes that, so far, long-established firms are resisting change. And so are many young lawyers. “We’re all workaholics at Stanford Law,” he says. “We’re still going to work insane hours anyway.”

If some of his suggestions are adopted, at least young associates will be able to decide for themselves where to focus their intensity.

A Changing Marketplace for Lawyers

So intense are the pressures on young lawyers and so low are the odds of climbing the law-firm ladder to equity partner that many graduates now plan to job hop before they find their niche. That’s a major change from just a decade or so ago. The next decades will present an even larger challenge.

Larry Kramer, Richard E. Lang Professor of Law and Dean, says the law school is focusing on preparing graduates for an extended—and much more diversified—career path, whether at a law firm or in other industries.

To that end, Kramer has broadened the curriculum for second- and third-year students to include a wide variety of crossdisciplinary classes that provide students with skills and perspectives beyond the traditional legal curriculum. “To be successful today, lawyers need a broad understanding of the business world—or medical world, or engineering world, or whatever area in which they focus. Enhancing their education with courses outside of the law will not only help them to find their niche in the profession but also to be better lawyers in that field.”

Stanford Law School is now leveraging the expertise of the wider university by offering an almost limitless number of joint degree programs. This is good news to firm executives like chairman and CEO of Cooley Godward Kronish LLP, Stephen Neal ’73.

“In almost any area of the law that you can envision a young law school graduate going into—the more the lawyers really do understand the underlying subject matter, the substantive matter that is involved, the more effective they will be and the more quickly they will be effective as young lawyers,” says Neal. “We have a very large intellectual property practice in our firm that involves prosecuting patents, advising companies on their sort of crown jewel intellectual property, and trying intellectual property cases. We have 35 lawyers with advanced degrees in hard sciences in our firm today. We would double that number if we could.”

But better preparation at law school can only do so much in helping lawyers navigate the changing landscape of the profession. As corporate clients demand more service from their outside counsel— possibly for lower fixed fees—many of the lawyers who are supplying that service are demanding more free time for themselves and their families. The contradiction is perhaps the most vexing problem facing the legal profession today.

“Something here is going to give,” predicts Kramer. “The basic economic model is going to have to shift dramatically and it’s hard to predict what that is going to look like.”

Meanwhile, the vast majority of Stanford Law graduates will continue to pursue a legal career in law firms. Not surprisingly, Stanford Law alumni often thrive in the competitive environment of large firms, with many rising through the ranks to partner status. In fact, 94 of America’s 100 largest firms have partners who graduated from Stanford Law, according to information gathered from the American Lawyer.

“The importance of law in structuring everything we do as a society is not going to change and so great lawyers will remain indispensable,” says Kramer. “What will change is the form in which lawyers practice and work together and with clients. But how? That remains to be seen. Our goal is to educate students who will be prepared to move and flow with a changing professional environment.”