An extraordinary and convincing vision of a revolution in big law’s future was presented by Mark Chandler, SVP and General Counsel of Cisco, in a speech in January at Northwestern School of Law’s 34th Annual Securities Regulation Institute. I would like to join other legal commentators in paraphrasing Chandler’s comments and commending him on his far-sightedness.
Driven as are other GCs to realize productivity improvements in his department, Chandler is committed to reducing Cisco’s legal expenses as Cisco gets bigger. Chandler points out that information, a law firm’s stock in trade, will only get easier, and therefore cheaper, to access over time. Already standardized on-line legal data is available, with residential leases and individual tax returns now largely done by software.
But even Cisco’s first tier corporate legal work is being drilled down to a cost-effective, accessible product. Contracts are drafted, executed and archived by employees using on-line software. Cisco pays a fixed fee for patent prosecution and intends to pay at least 5% less each year, requiring its firms to find ways to lower costs. It also pays a fixed fee for the review of license offers, which Baker & Botts has been able to make profitable by developing a more efficient systematic approach. In the corporate secretarial area, Cisco has replaced a group of outside firms with a one-firm solution that aims for a 20% reduction in legal expenses in part by using standardized forms and open interfaces.
In litigation, Cisco has a fixed fee arrangement with Morgan Lewis to manage all of its US commercial litigation, which has made litigation avoidance the firm’s key goal, aligning perfectly with Cisco’s interest.
Counseling will be the next frontier, Chandler believes, as online tools like tax counseling via www.taxalmanac spread to other legal areas, such as export regulations, human resources and employment and eventually securities law compliance. Cisco is already working with eight other Fortune 500 companies and a number of law firms on a site called Legal On Ramp to allow direct access to search law firms’ knowledge management systems. See www.legalonramp.com.
And in each instance, what was novel in Cisco’s legal management strategies five years ago has become more commonplace among its peers today and may well eventually become available for purchase as packaged software.
The current law firm business model, according to Chandler, reflects a fundamental misalignment of interest between clients who are driven to manage expenses and law firms compensated by the hour. Clients are not in the market of buying time, he points out, but value. The current system not only mis-serves clients, but also the lawyers themselves, particularly associates, who Chandler says are beating down his doors because they don’t want to work for law firms any more–enslaved by a billable hour-based compensation system that is inefficient in producing a valuable product and that offers them little chance of making partner.
Chandler recognizes that law firms are currently profitable as structured. Clay Christensen of Harvard Business School calls large American law firms "the most profitable businesses in the world. Speedier information-gathering capabilities allow large law firms to increase utilization of less experienced lawyers without passing cost savings on to their customers." But Chandler is convinced that the very source of success for firms today–the ability to control client access to expertise, requiring 1:1 delivery–will be the source of their failure in the future. It is top quality boutiques that Chandler is betting will change and survive, and it is in Cisco’s interest to help make them profitable while doing so. Chandler views slower-moving, cost-heavy large centralized firms to be at risk.
"If the economic system of law firms is frustrating to associates and even some partners, I can tell you that from the standpoint of a metric driven general counsel, it is more than incomprehensible. It looks like the last vestige of the medieval guild system to survive into the 21st century."