Cost reduction = quality reduction

Cogence Search’s Mark Husband on the fallacy of cheap legal services

The respected legal commentator (and fan of mammals) Bruce MacEwen recently commented: ‘Of course, while hedgehogs know one big thing – that BigLaw hasn’t changed and hasn’t needed to so far – foxes know many things.

For example: a) 95% of the work on that indispensable “international M&A” deal consists of due diligence scutwork suitable for the skills of any conscientious team of $25/hour freelancers; b) IBM’s Watson is fast approaching the ability to understand language in context, and did we mention it has Moore’s Law on its side?; and c) pricing and efficiency pressure is actually not coming from the GCs [general counsel] and law departments of clients but from the CFOs [chief financial officers] and finance departments, who don’t give a fig about our noble profession and don’t consider it their problem to ensure the profitability, or even the existence, of the Global 50.’

I must respectfully disagree with much of what he says. The much-touted IBM Watson, while able to answer some questions posed in ordinary language and boasting an impressive 16TB of RAM (70TB less than a human!), has no capacity to think laterally or creatively, understand human emotion or commercial motivation(s) and quite literally has no ‘skin in the game’ in terms of risk.

Moore’s Law relates to processor speed and definitely not the speed at which we are approaching ‘singularity’ or artificial general intelligence, which is guessed at but remains unknowable.

A $25-an-hour freelance document reviewer with no hope of a career beyond being a $25-an-hour document reviewer will not be conscientious; desperate perhaps, depressed certainly, but not conscientious.

While the CFOs of the world may wish to penny-pinch on legal spend, it is emphatically not their backsides on the line if the consequences of their economy drive mean that their company is inadequately represented and suffers loss – the GC, managing director and others on the board may find their necks on the line, while the CFO is lauded for keeping the costs down.

Clients want ‘more for less’; well frankly, they cannot have it. Even the most straightforward transactions are bespoke and contain innumerable possible errors or adverse outcomes. The process of conducting a matter while ensuring that all real and theoretical risks are addressed, the client’s expectations met or moderated and exposure to loss mitigated, is complex and expensive.

***

Should clients actually want a ‘disrupted’ and cheaper legal service, I would invite them to waive any right of recourse against their advisers for negligence and to help them do so I have drafted a precedent indemnity that they may offer to their legal services providers:

‘I hereby indemnify and hold innocent for all time DUFF LAW LLP in respect of any and all losses (immediate, consequential, remote, hopelessly remote and fictional) or other liability, arising out of or in relation to any and all legal or other advice given by them to me in respect of, tangential to, remotely related to, not remotely related to (but they ought to have known because I said something about this to Bingo at the club which might, in hindsight, become relevant if things don’t turn out how I want them to) the XXXX matter.

‘DUFF LAW LLP may do or fail to do anything they like; they may omit or err with impunity and I will pick up the tab no matter what happens, why it happens or how much it costs. In giving this indemnity, I confirm that I have sought and gained independent legal advice from NAFF LAW LLP as to the nature and extent of the indemnity given, who in turn are the beneficiaries of an equivalent indemnity in respect of which I sought advice from BADD LAW LLP who in turn… etc.’

***

The suggestion from almost all legal sector commentators is that law firms should expect to trade at far lower margins than they do at present – why on earth should they? Few enough lawyers get into a position in which they have a true interest in the profitability of the firm; the hours are staggering, the professional pressures are enormous and the remuneration for most will never equal the level of a GP, high-street dentist or junior banker. It is trite but apparently necessary to say that, to provide a quality service, the profession needs to attract and retain quality people – this will not be possible if there is no upside to being a member of the profession.

The expectation is that ‘efficiencies’ achieved through production-line delivery of legal services in favour of a bespoke service will reduce fees. Reliance on process management rather than the expertise of a lawyer means that things will be missed, errors will creep in and more claims will be made.

In wholly commoditised conveyancing processes, it is now common to have professional indemnity cover charged as a disbursement. As process took over, fees collapsed, more claims were made and the cost of cover went up. Does anyone really want to see this in more commercial areas of law?

Clients do want to know that their lawyers are handling their matter personally – they want the buck to stop with their solicitor, and for the advice given to be authoritative and to be supported by precedent, expertise and experience. Somewhere along the way, a sense of entitlement has developed among clients: ‘Solicitors should be grateful to get our work – they should do it at a margin we want and not one they need’ and this has been compounded by a wholly erroneous belief that ‘it is all just a tick-box exercise anyway’.

We all want things to be cheaper, right up until the moment we find that we have bought a cheap thing.