Lawyers love conflict. They thrive on it. If anyone can coexist with conflict, it’s a lawyer.
At least that’s how most people think of lawyers. In reality, the opposite is more often true. The only people who “love” conflict might be candidates for the therapist’s couch. Most of us, especially lawyers, are averse to it.
The lawyer turned clinical psychologist, Larry Richard, has given personality assessments to over 5,000 lawyers over 20 years. As a “tribe” lawyers are disproportionately low in the personality traits of resilience and sociability. Resilience is the mark of emotional intelligence that allows one to accept failure, rejection and loss. We’re not so good at that it turns out.
That may be, but what does that have to do with the economics of a successful legal practice or law department? It might surprise a few of us who subscribe to the zealous advocacy theory of legal practice that collaboration is more economically sustainable than exclusive competition.
Hold this thought in mind: in 2017 $10 billion in legal services revenue went from the BigLaw vault into the pockets of alternative legal service providers that are not law firms.
Why? Our conflict aversion is our greatest enemy in the Exponential Age of digital data, artificial intelligence and blockchain technologies. Doing “better, faster and cheaper” is the mantra of the collaborative economy. The legal business model that has worked extremely well in the competitive economy is on the verge of collapse, though that claim may seem a bit grandiose—even for a lawyer. But let’s examine the evidence.
Unresolved Conflict in Workplaces is Expensive
Howatt HR Consulting provides a conflict cost calculator to gauge the cost of unresolved conflict in law firms and legal departments. I recently ran my calculator from the perspective of the most conflict-rich workplace I remember being a part of. It only cost $100,000 per year in lost productivity, absenteeism, health-care claims, turnover and other profit-destroying contributors. That is simply the impact of one person in that workplace! Howatt points out that the Canadian economy suffers a loss of over $16 billion each year due to unresolved conflict in the nation’s workplaces.
It’s customarily calculated that the cost of an employee’s turnover—through termination or voluntary departure, then replacement—costs 120 percent of that employee’s annual compensation. For a $55,000-a-year paralegal, the cost of losing him or her is $66,000. Lost productivity, training and bringing a replacement to the same level of performance as a predecessor is not cheap.
At the British Legal Technology Forum 2018, Kevin Gold, a Mishcon de Reya managing partner, stated in a plenary session that the firm had calculated the costs of bringing a new young attorney to the point of return on investment; it was £250,000, or roughly $340,000.
I have listened as partners proudly describe the economic brilliance of their firm’s leverage model in terms such as, “We have one associate make partner for every eight associates we hire. They’re expendable. If they can’t figure out how to succeed in our business model, we don’t need them. There are more waiting for the empty chair.” But losing seven associates to every one who makes partner is a very expensive proposition. Most associates who aren’t going to make partner are gone, voluntarily or otherwise, before they achieve third-year status.
According to Gold, the young lawyers at Mishcon de Reya become revenue-neutral somewhere close to their third year. Under the “business” model in my partner-friend’s firm, the firm loses about $2.5 million for every successful associate. Adjust the variables however you wish and the loss of treating associate attorneys as fungible is economically foolhardy, if not disastrous.
Similarly, the numerous accounts and studies of lateral attorney hires reflect how rarely the transition is economically beneficial for the firm. The laterally hired partner usually makes out like a bandit, but the firm often breaks even at best. More often the transaction is a loss leader. It may be worth the headlines, but the price borne by the bottom line can be less than rosy.
Of course, the law is one of the only professions that prohibits noncompete agreements with lawyers. A high-value executive can be bound by non-competes, but not lawyers. As a former firm executive committee member, we often said that a law firm is the only business that allows its inventory to walk out the door each night. If the lawyer doesn’t return the next day, neither do their clients in most cases. When negotiating with a lateral attorney, the deal is usually cut on the basis of the attorney’s portable business.
What’s the cause of all this lost revenue and profit? Unresolved conflict is usually the culprit. Perhaps it’s the associate who isn’t popular enough with the firm’s power brokers and influencers to be “worth the effort” to resource, train, develop and treat as the resource Mishcon de Reya recognizes him or her to be. Or partners at odds with each over origination credits in the last compensation wars are more likely to engage in passive-aggressive behavior than have a conversation intended to reach agreement over a proper allocation of credit.
Admit it, you know it’s true. After 40 years of legal practice, I’ve witnessed more unresolved conflict in law firms and legal departments than in prisons. Prisoners just “take it outside.” Lawyers demonstrate what we call Nashville Nice around these parts. You learn how to smile to their faces and then stab them in the back with a politically correct criticism in the Nashville fashion: “Oh, she’s a nice person, and I would never say anything bad about her, bless her heart.” That’s conflict aversion.
Frankly, it’s more than an economic problem. It’s a societal, emotional and health problem. Lawyer addiction, suicide and relational dysfunction exceed the general norm by a large margin. That, too, is an economic scourge.
The statistics cannot be questioned. Gender diversity in law school is far superior to that in law firms, legal departments, firm management committees, partnerships and the executive suite. Racial diversity doesn’t even begin to reflect the population. The steady reduction in diversity as the organizational level of power and status increases is an indictment on our entire profession. What are the economic costs? The answer is simply unimaginable—and totally unacceptable.
Thriving in the Collaborative Economy
We all remember the 1L experience when the most intimidating professor in our assigned classes made the recurrent sobering remark: “Look to your right, look to the left . . . .” Thus began our steady march into the competitive mindset of “thinking like a lawyer.” Unfortunately, for those of us wired that way, this culture of competition fed all our worst instincts. For others it was soul destroying. Richard, the lawyer turned clinical therapist, indicates that’s the reason he became a psychologist.
While the law has perfected radical competitiveness, the rest of the business world is becoming radically collaborative. This transformative transition is due to the inevitability of digital power and pace. For a full exploration of the exponential nature of the Digital Age and its impact on commerce and culture, read The Second Machine Age: Work, Progress, and Prosperity in a Time of Brilliant Technologies, by Erik Brynjolfsson and Andrew McAfee. The authors brilliantly compare the attributes of the first half of the Machine Age—from the steam engine up to 2006—to the second half. The first was competitive leading to scarcity. The second, also known as the Exponential Age, is collaborative leading to abundance.
A recent visit to Silicon Valley revealed how cooperative business has become. I spoke with a software engineer working for Dell who supervises a software development team. Nothing abnormal about that. However, he manages a team whose members change every day on projects that change every day. A Dell engineer manages a team that one day might consist of developers from Microsoft, SAP, Google, Apple and others. They are working on open-source software that builds open-source software—for the benefit of all.
Some say attorneys could never do that. It would be unethical, wouldn’t it? Ask Pfizer and the small number of law firms that won the privilege of doing Pfizer’s legal work. A few years ago the pharmaceutical company required its successful law firm bidders to share work product, lessons learned and mistakes made with the other Pfizer core counsel after each matter. That’s distinctly unconventional—and the hallmark of successful business models in the Exponential Age.
Many other professions have already arrived in the cooperative age of business. Preparing for a recent training program for the Vanderbilt Medical School Leadership College, I discovered Quantum Leadership: Building Better Partnerships for Sustainable Health, by Tim Porter-O’Grady and Kathy Malloch. Remove the word “health” and replace it with “law” and the parallels are unmistakable. The tools of technology, artificial intelligence, blockchain, the “internet of things” and cryptocurrency are, or will be, changing everything. Even quantum computing has arrived, making traditional computing look like the tortoise versus the hare—that is, quantum computers can calculate 100,000 times faster. As a result the old keep-it-so-no-one-else-can-get-it mindset is evaporating. Do you want to work on IBM’s quantum computer, operating at 20 qubits and soon to be 50 qubits? It’s free and open source. Go right ahead.
When did all this happen, you ask. Seemingly overnight, and without warning. That’s exponential. As a result no disciplinary expertise is sufficient in itself. Cognitive diversity is the fuel of innovation. Seeing a problem from the same perspective leads to the same old solutions. Seeing the same problem from multiple perspectives (gender, racial, religious, sexual orientation, disability and national origin) brings creativity to the table, and competition is inimical to its success.
What “quantum leadership” requires is a new form of leadership: one that’s radically collaborative. The old commercial model is hierarchical, structured and highly command-and-control oriented. The new model is flat, team-based and relational.
The new commercial model is focused on accountability rather than responsibility and output rather than effort. My life as a lawyer was spent selling effort, not output. Time has been the coin of the realm in the law since 1956, when the ABA informed lawyers that “time is your most valuable asset.” Man, did we buy that, and so did our clients—until they tired of it. Now they want value, not effort.
The difference between the old commercial order and the new is stunning. Working in teams is not taught in law school. I have been teaching Legal Project Management at Vanderbilt Law School for six years. Law students routinely report that this class is the first time they have been asked to work in a team in law school unless they are joint J.D./M.B.A. candidates. Business students don’t understand why law school doesn’t value teamwork. Therein lies one of our greatest problems: our clients are team-based, and we don’t know how to do that.
Replacing Hypercompetition with Collaboration
Let’s return to the question of the missing $10 billion. How could BigLaw lose that much value in a year? Let’s examine the data.
The data isn’t secret. It’s been building over 10 years. It’s more than an aberration; it’s a statistical trend. The data is submitted voluntarily by the nation’s largest law firms—namely, the Am Law 300—on a monthly basis and reported in the Thomson Reuters Peer Monitor Index reports. Although anonymized, the data collected over the last 10 years is stunning. Law firms are losing market share steadily, relentlessly and without response.
Spend time with the data reported in the Georgetown Law Center’s and Thomson Reuters Legal Executive Institute’s annual Report on the State of the Legal Market. Ten years of BigLaw self-reporting reveals the following: all the data reflecting financial progress in time billed and billings realized, collected and banked in firm law treasuries is in long-term decline. There are two rising trends: rates and costs. This dangerous economic state is obvious to everyone. Nothing is being done except by a few high-flying firms that have figured out the antidote to demise.
Check out Table 15 in the Georgetown/Thomson Reuter’s report. The missing $10 billion went to nonlawyers and nonlaw firms such as PwC, Deloitte, Axiom, lexunited, Pangea3, LegalZoom and a growing host of alternative legal service providers doing law better, faster and cheaper—and sometimes without a law license. That’s what the market wants.
The report pulls no punches this year. It states: “Stop doubling down on your failing strategy!” Citing the Harvard Business Review analysis by the same title, the report warns BigLaw leaders that their conflict aversion could make these hallmark firms irrelevant.
How so? Harvard and Georgetown Law cite the power of our “mind-blindness” in the face of economic peril. It’s all about heuristics, the state of mind that partially determines how we react to stress and threat. Our worldview is only valuable in the context of how it was formed. Another way of saying it is, “You can’t tell a room full of millionaires their business model is broken.” They can’t hear it. This is not a function of intelligence but of experience. We can’t know what we don’t know.
Specifically, the mental heuristics that take over our cognitive capacity in times of economic peril can be summarized with startling reality in the following ways:
When combined, these mental heuristics, which reflect simply how the human brain works, can be a toxic brew of mind-blindness, obscuring paths to rescue and ways out of a dilemma of our own making.
What’s a body to do? We must overcome our conflict aversion and welcome a path to open, respectful and strategic conflict competence rather than our preferred resort to passive-aggressive behavior.
The Harvard Business Review article suggests rules to follow to achieve conflict competence:
Embracing the Cooperative Economy
Although unfamiliar to those of us steeped in a competitive model of economic success, the world has moved on and is continuing to stake out new opportunities for economic success through previously unheard-of degrees of cooperative effort.
Start small and learn as you go. Discover the power and the scope of building bridges rather than silos. As our digital world continues to explode in data and the power to process it, learn to learn from other disciplines. Make friends with a data scientist, a software engineer or a legal project manager. Learn to see from their perspectives.
And, most importantly, jump in, the water’s fine.