Technology

The 'Quiet Crisis' In Legal And How to Fix It – Eddie Hartman's Vision

The legal market is fundamentally broken, and we will need to enlist the help of non-lawyers to fix it.

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Eddie Hartman

Eddie Hartman

Ed. note: As a friendly reminder, the views expressed here are strictly mine and do not reflect, in any way, the position of my employer, Thomson Reuters.

Is law too important to be left to lawyers alone? Eddie Hartman, co-founder of LegalZoom, thinks so. He believes the legal market is fundamentally broken, and we will need to enlist the help of non-lawyers to fix it.

It is axiomatic that innovation in legal is slow — incredibly, painfully, excruciatingly slow. But why is that exactly? Since launching this column, Ed Sohn and I have scoured the globe for the most innovative legal companies, fervently believing that some Thomas Edison for the legal world would invent a silver bullet destroying a broken model. We’re still waiting.

Two weeks ago, my quest for the best in legal innovation led me back to Stanford’s FutureLaw conference.  And while I was once again wowed by technology, I came away persuaded that it is the legal structure of our system that is our industry’s limiting factor — not the lack of killer apps.  Appropriately, I was persuaded by a lawyer, Eddie Hartman (who also happens to be a Wharton-trained MBA, Yale lecturer, and legal-tech innovator). Most people know Eddie as the co-founder of LegalZoom, but the advocate in him is still strong. In one hour at FutureLaw, he laid out a compelling case that our legal system will remain in a quiet crisis until non-lawyers (you may have heard of them: businesspeople, technologists, marketers and managers) can own shares in law firms, and drive the level of competition, experimentation and change we see in other sectors of our economy.

After his talk, I hunted him down and asked if I could interview him and present his argument to you, dear readers.  He obliged! So please take a few minutes to review the Cliff Notes® version of his argument below, and tell me what you think.  More importantly, share this with one of those non-lawyer types, and tell me what they think.

The Quiet Crisis In Legal

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Eddie believes passionately that the situation the public faces with respect to legal services is a quiet crisis. He argues:

If we had less than 15 percent of seriously ill people actually going to doctors, we’d call that a massive health crisis, and it would be in every newspaper and on every television show.

But we have a parallel problem in law, and as a society the legal profession has decided to shrug. Only 20 percent of us have a bachelor’s degree, let alone a law degree, yet we still demand that the public understand the rules they need to follow, and ignorance of the law is no excuse.

Even if you are a lawyer, the law is so complicated that to understand niche practice areas you often need the help of yet another lawyer with suitable training. Yet we hold people accountable without giving them the support they need. This is due to a lack of availability, a lack of awareness, a lack of logistics and distribution. For example, people in rural areas, even if they have the money, often cannot get a proper lawyer for their issues. So we have this massive problem, this crisis in our county.

Thus, he concluded, “We are operating in a framework that cheats the public of a public good.”

The Moonshot, Justice for All

Despite this crisis, Eddie remains an optimist: “We have created big solutions. We’ve put a man on the moon. And it while it wasn’t lawyers who put a man on the moon, it wasn’t just engineers either: it was a huge team, a multidisciplinary team, and everyone had input.” Similarly, the delivery of legal advice could be revolutionized by the incorporation of the best people from other fields. “Looking at humanity’s greatest inventions over the last 100 or so years, like the transistor, or penicillin, or Linux, all these have really helped us to move forward and none of those were built by lawyers.” So, he argues, we have to accept that non-lawyers have a lot to say and much to offer. And yet we keep them out of positions of ownership and influence at law firms.

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Please note, that Eddie is a lover of lawyers and and the legal profession — Eddie named one of his children, Darrow, after Clarence Darrow — and believes that lawyers also do amazing things: “The United States of America was brought to us mostly by lawyers,” he reminded me.  But, he cautions, lawyers have handed themselves a monopoly on fundamental services society needs. Accordingly, when lawyers are inefficient or old school (i.e., they don’t want to try new business models, or implement new software that would make their work better/faster/cheaper) it doesn’t just hurt the lawyers themselves, or their clients, but it hurts the public.

But we struggle to collaborate on this moonshot, because in America, only lawyers can share ownership in any for-profit business that provides legal advice to the public (i.e., a law firm). Please note, that this is not true for corporations (hey, they are people too right!), who can integrate lawyers into their business model, as long as those lawyers only provide legal advice to the corporation, and not the public at large.

Today, no such monopoly exists in the UK — as we discussed here — due to the Legal Services Act (more on that later). Eddie’s “modest proposal” is to follow the UK’s lead and give non-lawyers a seat at the legal table. He emphasizes that very solid research done in the UK supports this, and that these non-lawyers “have done a pretty good job in other industries” increasing access and lowering pricing.

If You Build It, Will They Come? 

While there are many potential advantages to non-attorney ownership (such as far better access to the capital markets), Eddie believes that the key advantage for businesses that provide legal advice is that they could attract the best global talent from other disciplines, and give that talent a vote.

You, dear reader, might be thinking: “Well wait a second, can’t law firms just hire great people to do that work?  Why do they need to give them equity? Can’t they just find people who are good at those computer things and give them a nice paycheck?”

Well, for the most part, no. First, you are never going to be able to attract the people at the absolute top of their professions if you don’t offer them equity (or at least a designated slice of the revenue or profits you are generating through their work, like a commission). In any major market for talent (not just technology, but finance, logistics, operations, marketing), people at the highest levels are offered some way to participate alongside owners in the upside of their organization.

Next, even if you could attract top talent with salary alone, it will remain very difficult to keep them when they don’t have an equal vote. Eddie emphasized:

at LegalZoom, we have a chief of technology, and when the chief of technology says ‘this is what we are going to do,’ then this is what we are going to do. At law firms the IT department frequently says, the lawyers should use this or that contract technology because it is faster and more accurate, but everyone ignores them. And that’s because the IT team at most law firms is powerless, they don’t have representation at the highest level. There is no one with voting equity who’s banging on the table saying, ‘no one is following my protocol, no one is opening the emails my team sends. And I’m furious.’ They just don’t have the power they would have if they had an actual equity stake.

And obviously, law firms already fundamentally understand this! To attract legal talent, they offer a partnership track to equity. It’s the only way they can keep the best talent in the world working as hard as they do (certainly raises are nice too!).  Well, the same is true for top non-legal talent.

The UK Turns A Corner and The US Turns a Blind Eye

Eddie walked me through a quick history of non-lawyer ownership of law firms (which he is writing a book about as well). Feel free to skip this, if you’re not a details person — I would, had I not written it.

The movement started in New South Wales (the most populous state in Australia), in the early 2000s. Shortly thereafter, in the UK, Parliament recruited Sr. David Clementi (a non-lawyer who had run a massive insurance company) to research the issue. His mandate was:

To consider what regulatory framework would best promote competition, innovation and the public and consumer interest in an efficient, effective and independent legal sector.

To recommend a framework which will be independent in representing the public and consumer interest, comprehensive, accountable, consistent, flexible, transparent, and no more restrictive or burdensome than is clearly justified.

The Clementi Report, as Eddie calls it, concluded (amongst other things) that the UK needed to begin to allow non-lawyer ownership of law firms, in order to increase competition, and give the public more choice. He reasoned that the existing UK legal system (reminder, the one that seeded ours) was too opaque. For example, prices weren’t posted and players did not truly compete. He thought that opening it up to non-lawyers would change things for the better. He also set forth out a number of bullet-point metrics by which the legal industry should measure itself.

In 2007, the Legal Services Act passed parliament, implementing the bulk of the Clementi report. This act did not go into effect until 2011. The first law firms with non-attorney ownership (Alternative Business Structures, or ABS) began to open in late 2011 and 2012.

Back here in the US, things went very differently. In 2012, the ABA Commission on Ethics 20/20 chose not to draft a proposal on non-lawyer ownership because “[b]ased on the commission’s extensive outreach, research, consultation, and the response of the profession, there does not appear to be a sufficient basis for recommending a change to ABA policy.”

Early this year, the ABA Passed Resolution 105, which — like the Clementi report — laid out a set of bullet points through which the legal profession should measure itself. However, contrary to the Clementi Report, it concludes that “nothing contained in this Resolution abrogates in any manner existing ABA policy prohibiting non-lawyer ownership of law firms.”

So don’t hold your breath, and here we are.

LegalZoom Puts It’s Money Where Its Mouth Is (“Don’t Believe Me Just Watch”)

So for those of you who believe that non-lawyer ownership will lead to better things, watch Eddie’s company, LegalZoom.

LegalZoom got its ABS license approved in January of 2015 and spent a year shopping around for a law firm, finally purchasing Beaumont Legal.  I was not sure if he was being sarcastic when he told me “you cannot imagine how delighted the lawyers in this 230-year old British law firm were when they discovered they were bought by a bunch of Californians.”

Beaumont is known for property conveyancing, and LegalZoom believes that this is an area of the law that it could improve upon, because it follows a well defined and repeatable process. They believe that through great management, proper implementation of technology, and repeatable work processes, they will dramatically improve the traditional delivery model. Eddie said:

We are going to prove that Beaumont’s clients will get work with the same duties, the same responsibilities, the same level of services/attorney client confidentiality that they had in the past. And yet, the attorneys at Beaumont can now practice at the top of their licenses, because all the drudge work is taken care of for them, the technology makes things faster and more reliable (we really want to stress this). I think what you see in the UK, with the ABS models, is that customer satisfaction is up and errors are way down.

From Eddie’s point of view, bringing non-lawyers into the fold will bring such benefit to the legal consumers that it is unethical to stand in the way: “In the U.S., members of the legal profession know we could build a better system, but we refuse to act. And to me that is the bigger ethical question.”

Joe Borstein

Joe Borstein

Joe Borstein is a Global Director with Thomson Reuters Legal Managed Services, delivering Pangea3 award-winning legal outsourcing services and employing over 1800 full-time legal, compliance, and technology professionals across the globe. He and his co-author Ed Sohn each spent over half a decade as associates in BigLaw and were classmates at Penn Law.

Joe manages a global team dedicated to counseling law firm and corporate clients on how to best leverage Thomson Reuters legal professionals to improve legal results, cut costs, raise profits, and have a social life. He is a frequent speaker on global trends in the legal industry and, specifically, how law firms are leveraging those trends to become more profitable. If you are interested in entrepreneurship and the delivery of legal services, please reach out to Joe directly at joe.borstein@tr.com.

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