’s online journal, The Practice. Given
it won’t surprise readers that the paper is packed full of analysis, ideas and thought leadership.
It is hard to argue with this. Eisenberg’s track record shows just how much can be achieved within a traditional law firm, but the reality that a traditional law firm partnership did not (could not or would not?) provide the investment for Lawyers on Demand to scale, hence the
sale to Bowmark Capital
in 2019. No point in being right with their analysis if law firms simply won’t commit to the investment needed – financially or culturally.
What of the scale question? I read the paper in the same week that
Legal Zoom’s
IPO launched
on NASDAQ, raising them over $500m, rising rapidly to an enterprise value of around $7bn. Earlier this year
Rocket Lawyer
raised $223m. And we have seen
Axiom
raised significant investment when it eschewed an IPO under an
offer from Permira
(who had previously invested in Legal Zoom).
Elevate
took a
$25m investment
from Kayne Partners following a $25m facility from Morgan Stanley that financed several acquisitions, and has made it known that it seeks to become a public company in future.
We can also look at the Big Four in the UK and across the world. At least one of the Big Four is in the top 100 law firms in the UK, and probably the top 50 and that doesn’t touch their global legal revenue. But what is important in that equation is that this calculation usually only considers their regulated legal services revenue. And, of course, they have the advantage of being able to only put a small proportion of their legal work through a regulated law firm in the UK. Even post Legal Services Act 2007, it was only from 2014 that the Big Four (and other professional services firms) were able to create genuine multi-disciplinary practices as opposed to owning a separate law firm. This gets technical but readers need to understand the way the
SRA regulates MDPs
to recognise that the vast majority of their legal revenue is not recorded as legal service turnover by the regulator. It is tax advice, consultancy service, outsourcing, advisory, managed legal service and more.
What even counts as the legal services market? That Legal Zoom can generate so much investment, or that Rocket Lawyer can have something like 25 million customers, without practicing law in the US suggests that definitions can obscure reality. Attempts by the Legal Services Board to even quantify the huge unregulated legal market have floundered but they made
some findings. There is at least a danger that lawyer commentators see the issues through the lens of law firms, missing the hinterland. The regulatory restrictions that Susskind and Eisenberg note mean that the business of law gets categorised outside of the legal market, thus depressing both the size of the market and the share that alternatives to lawyers hold. You can compete with law firms by providing better or cheaper services – within the market; but also by providing alternative solutions to that need – ie creating a new market. These innovations, combined with regulatory restrictions that require services not to be legal advice obscure the measurement of scale.
So while I don’t know what counts as scale, the alternative market looks pretty big to me. Alternative providers are around 20 years old and they are growing quickly despite regulatory headwinds. If this isn’t scale, or at least a clear path to scale, what is?
Even when I look at Amazon it is remarkable how, with hindsight, we see that their real scale came after 20 years (they started in 1994) – it is simply the maths of exponential growth. Elevate has grown from startup to almost $100m in 10 years, at something like 60% CAGR, so after 20 years, even if growth slows, Elevate will quickly become very significant.
None of this means that alternative providers are secretly dominant. But the 1.5% of the market misleads because alternative providers are not competing in all sectors – market definition is something that I will leave to economists, but it is easy to be misdirected by numbers. That all of these businesses are growing and reaching some sort of scale suggest that there are at least some areas of the legal market (beyond e-discovery which is acknowledged by the authors as scaled) that can be sliced horizontally to at least some degree.
Furthermore, I know of several GCs that are asking alternative providers to do more – including reserved legal activities or the practice of law. Trust is earned on the lower value work and grows from there. And that is where regulatory restrictions kick in. The caution of corporate clients is well recognised but change is happening. Perhaps Legal Zoom and Rocket Lawyer are scaling fastest because they sell to the public rather than other lawyers - their customers are not knee-deep in lawyer exceptionalism.
Susskind and Eisenberg acknowledge the impact of regulatory restrictions. The unauthorised practice of law and the lawyer monopoly create a pretty impressive moat on first sight, especially when that moat’s size and shape is controlled by the lawyers and their professional bodies. But the history of guilds tells us that they are not quite as impregnable as they first appear. The City of London is full of halls that commemorate trades and professions that used to dominate; but we no longer know what some of them even were because new entrants found ways to bypass restrictions and legislators dismantled others. Once they faced competition many guild members were swallowed up by new models better able to meet customers changing needs.
Is that happening in law? While US State Bars debate regulatory reform – considering how deep and wide their moat should be – new entrants are simply building an alternative future. Witness all the firms that I have mentioned so far. What could Legal Zoom, Rocket Lawyer, Axiom, Elevate, the Big Four all achieve if they could practice law in the US?
England & Wales gives us a clue, but it is more nuanced than perhaps recognised. They have been able to become an ABS (or own one) only since 2012 (it took five years for the Legal Services Act to be implemented). But it was only at the end of 2019 that solicitors were allowed to practice for clients through an alternative provider even in England & Wales. Thus, it is only now that alternative providers in the most liberalised major legal market can start to break down hard boundaries between law and non-law.
Reforms to how solicitors qualify in England & Wales, with the first exams this November, mean that alternative providers can also train their own lawyers in a way that they haven’t been able to previously. This just adds the to the opportunity.
And in the US things are changing too. Not just the reforms that Utah and Arizona have implemented, that California and Florida are developing, and other States considering. What is really important in the US is that investors and founders are finding ways to bypass the unauthorised practice of law. It isn’t hard. There are multiple routes (with a
good consultant
and a moderate risk appetite) to bypass the restrictions. That is not just on the margins but also direct into the mainstream of the practice of law. No need to go into the detail here but UPL is heading the way of guilds.
The point of all of this is that alternative providers are well placed to deliver the sorts of model that Susskind and Eisenberg highlight and they have the leadership, governance, investment and culture to do that. I think the authors are right about the need for lawyers throughout the vertical; but that is not the same as being in charge of either the firm or the process or the work. Hamilton is right that most law firms are just not set up for the sort of transformation that is suggested.
Some firms might be capable of making the leap. Eisenberg is clearly the key example with his track record. I would add
Pinsent Mason
as another example. But the challenge for these firms is to ensure that partners are not the gateway; if law firms’ captured alternative provision are deployed only if partners choose to, then law firms will never reach the scale sought. Susskind and Eisenberg are clearly not saying that law firms need not worry about alternative providers, but it would not be surprising if many traditional lawyers might read their paper as making their own survival and success inevitable. I think the authors are actually mapping a revolution led by law firms rather than the demise of alternative providers. At its core the paper is making the case for a convergence between alternative and traditional models and that seems inevitable as regulatory restrictions unwind in the coming decade.
What timescale then for the revolution? Well, the industrial revolution took something like 50 years so it would be wrong to measure these sorts of changes in too short a timeframe. Regular readers will know I like a quote from a passage in Ernest Hemingway’s novel The Sun Also Rises in which a character is asked how he went bankrupt. “Two ways,” he answers. “Gradually, then suddenly.”
Change is already happening gradually and complacency about alternative providers makes the suddenly more likely, quicker.
