Technology

This One Factor Will Determine Winners And Losers In The New Legal World

Insights, predictions, and advice from Lex Machina CEO Karl Harris.

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Karl Harris (courtesy photo)

Few people in our industry have the experience, knowledge, and stone-cold math skills to weigh in on legal technology and the industry generally the way Karl Harris can. He’s current CEO and former CTO of Lex Machina, a hardcore legal analytics platform acquired by LexisNexis in 2015. Before getting his J.D. at Stanford, Harris hacked his way through bachelor’s and master’s degrees in computer science, developing submarine sonar systems and other complex software projects before diving into the legal world. When Harris weighs in on legal tech and the factors that will allow law firms to succeed in the new legal world, as he did with me in an interview earlier this week, it’s worth listening.

In both his role as CEO and as a general observer of the legal industry, Harris sees law firms as on the cusp of a fundamental revolution in how they deliver their services, but the revolution isn’t coming from within: “The stakeholder that’s going to be driving the change is clients.”

Die, Billable, Die

Harris sees part of this revolution to include a continuing shift away from the traditional billable hour model. “The billable hour, it’s just got to go away right? Nobody likes it. Clients don’t like it, the associate that’s got the little timer on their screen doesn’t like it, nobody likes it.” Under the billable hour, “there can often be an adversarial relationship with a client and its outside counsel, as you’re kind of wondering, ‘Are we really in alignment? Are our incentives aligned? Are they doing the right thing?’ ” To Harris, the firms that succeed are the ones that pivot out of that adversarial relationship into one where the firm is seen as an active partner in promoting their client’s business goals, rather than a necessary evil or just a line on an expense sheet.

Harris has seen firms experiment more with either fixed-fee arrangements or outcome-based fees, in a bleed-6over from the business-consulting world. “The McKinseys, the Bains, the BCGs, they’ve been doing this for a long time. There’s an engagement fee, and then if there are certain metrics of success met, then there’s more money to change hands, or if there’s less metrics of success, you know, there’s less money to change hands.” By sharing risk and aligning a law firm’s success with that of its customer, Harris believes firms will become more efficient with their own resources and develop a customer-centric approach to the services they provide.

Harris was quick to point out that being efficient and moving to fixed-fee work doesn’t mean necessarily taking a haircut on firm revenues. “It’s okay if a fixed-fee arrangement actually results in a higher fee than what a billable arrangement would, because what the client is paying for is reduced risk, and people are willing to pay to reduce risk.”

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Who’s Running The Shop?

“The question, then,” Harris told me, “is which law firms are going to be able to meet that change… . When I talk to law firm leaders and partners, the number one question on their minds is are we, as a firm, agile enough to meet the changing and evolving needs of our clients? In a lot of firms, the answer is no.”

Harris said he sees this as a deeply untenable state of affairs, especially for law firms that employ a traditional fiscal system. “There’s a lot of risk, year to year, in the law firm model. At the end of the year, you pay out all the profits to partners and you start with zero. You finance the firm for three quarters of the year with loans from a bank. You’re not even in the black until the last few months of the year, and then you make all your profits. Like, if you make one mistake, it can bring down an entire firm.”

To Harris, one of the most important questions a firm can be asking itself is about its leadership team. “What’s the profile of the ultimate decision-makers at these large law firms? Are they nimble, technology-savvy? Where are they at in generational turnover, and what’s their willingness to take risk and make changes?” Harris only sees competition growing stronger and more sharp-elbowed, and firms that aren’t ready to pivot quickly as circumstances merit could find themselves pushed right out of business.

Leveling The Field

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Part of the reason Harris sees competition continuing to increase is the company he leads. Harris sees Lex Machina and other tools like it as a great equalizer in the legal field, one that allows small and midsized firms to punch above their weight and handle litigation that was previously the domain of highly leveraged Biglaw outfits. As more attorneys have the tools to service these clients, the level of competition and customer service goes up, and our industry begins catching up on the ground it’s lost to the broader business world.

Lex Machina works by pooling a massive archive of litigation data points that its users can pull from, analyze, and use to make data-driven decisions about litigation strategy. Harris gave the example of trying to decide whether to file a motion for summary judgment in a major case. The traditional method of making that decision might be to email blast the firm for insights on the judge or opposing counsel, and then trying to use whatever anecdotes arrive to supplement the attorney’s legal reasoning and judgment.

With Lex Machina, however, an attorney can click a few buttons to pull statistics on their judge, profile their opposing counsel, generate expected returns on cases of specific types in their jurisdiction, or gather evidence to support decision-making on any number of other issues. Software can quickly pull in seconds the 10 most recent successful and unsuccessful MSJs a given judge has ruled on, or calculate what percentage of cases of a certain type succeed or fail in a given jury pool. And software does it faster, and for pennies on the dollar compared to what it would cost an associate or partner to generate the same data. That data helps attorneys make better litigation decisions and helps them communicate more effectively to their clients on why a given recommendation is the right one.

Harris was careful to point out that he doesn’t see AI like Lex Machina as coming to take attorneys’ jobs. “What AI is doing right now is massive pattern matching at scale. That’s what machine learning, natural language processing does: it makes sense of patterns that may be too hard for the human to hold all the data in their mind … . It’s great at processing lots of data at scale, but it’s just matching patterns. There is no intelligence that’s replacing your judgment, so don’t be afraid of AI. Embrace it. Leverage it to your advantage.”

Picking Winners And Losers

“Law firms are going to need to change, and there will be winners and losers,” Harris noted. What’s the one factor that, above all, will determine which firms succeed and which do not? “Law firm leaders need to make sure they’ve got that customer-centric product management approach. At the end of the day, the firm is your product. Be listening to your clients. Watch what they’re doing. Be aware of the data. Look how they’re evaluating your performance, and don’t fight that. Embrace it, because you’ve got to be in line with your customers.”

For as strange as the law can be, it’s just like every other business in that success or failure will always come down to how well we serve our customers. Leaders like Karl Harris are giving us the tools to do that better. Whether we use those tools is up to us.

James Goodnow is the CEO and managing partner of NLJ 250 firm Fennemore Craig. At age 36, he became the youngest known chief executive of a large law firm in the U.S. He holds his JD from Harvard Law School and dual business management certificates from MIT. He’s currently attending the Cambridge University Judge Business School (U.K.), where he’s working toward a master’s degree in entrepreneurship. James is the co-author of Motivating Millennials, which hit number one on Amazon in the business management new release category. You can connect with James on Twitter (@JamesGoodnow) or by emailing him at James@JamesGoodnow.com.

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