Firms need to do more than just update their IT systems to beat the competition.

All the talk in legal circles of late is of ‘innovation’. Law firms should innovate, create, adapt and develop, we hear. A Sword of Damocles simply dripping with the venom of demanding, increasingly wily clients is hanging over firms every minute of every day. There are numerous awards available for the most innovative lawyers.

Mark Brandon

But opening an office in Kettering, Cork or Quezon City is not innovative. Introducing a new client relationship management database or invoicing system is not innovative. Nor is fixed, collared, capped or value billing. Nor is rebranding your banking department the Capital Instruments Risk Assessment Practice. Different staffing arrangements are hardly innovative if they’re doing the same work in the same way, just in a cheaper location.

An award for being the most innovative lawyer in this market is, I’m afraid, rather like the award for being the fastest snail.

Toxic industries

Happily for lawyers everywhere, recent research in the US casts serious doubt on innovation as a long-term play. In fact, an American investor in the 1960s would have been best advised to place his $1 bet on what may well be the least innovative industry in US corporate history – tobacco (this according to Wharton professor Jeremy Siegel, reported on stock advisory site The Motley Fool).

Tobacco, in terms of investor returns, smashes anything else in the US economy, with $1 invested in cigarette company Altria (previously known as Philip Morris) worth $6,638 today, a compound annual return of over 20 per cent. That same dollar invested in the S&P500 would be worth just $87 – a staggering 98 per cent less.

Siegel cites the “hated” nature of the industry, a captive client base, an inbuilt ability to continuously raise prices and a stolid refusal to innovate as lying behind tobacco’s unmatched success. Sound familiar?

Now, one could carry this analogy too far. Lawyers are not literally toxic, but then nor are they especially pleasurable. You’re hardly likely to light one up after exerting yourself with an attractive partner. Equally, they are not addictive, unless you’re a Russian oligarch.

But the ability to raise prices based on controlled supply, the all-but-insurmountable barrier to entry into the industry and the lack of any external pressure to innovate all struck me as having a certain resonance for those engaged in the provision of legal services.

Tobacco companies have not needed to innovate because their customers do not really need them to. Would they like them to? Undoubtedly. But will they keep buying regardless? Definitely.

For the massively successful leaders of global Big Law, there is simply no pressing need to innovate in the sense that the rest of the world understands the term. Why would you, when you’re making a fortune doing exactly what everyone else is doing with no credible disaster-level threats and zero chance of the need for the product you are delivering – such as international M&A – ceasing to be required?

“An award for being the most innovative lawyer is like the award for being the fastest snail”

Rain on your parade

In-house lawyers are often cited as the catalyst for seismic change, but while creating a kind of power battle between the oft-hobbled managers of legal service consumption and their providers makes for good copy, good conference fodder and a little creative frisson in the higher echelons of law firms, it is light years from creating the kind of disruption the industry needs.

There are a few standout examples of where general counsel have been turning what is usually perceived as a cost centre into something that drives business advantage, but too many companies still recruit in-house lawyers who are as junior (cheap) as they can get away with, who are then steamrollered by their law firm suppliers.

I do not envy in-housers in that position. That’s not driving business advantage, it’s just firefighting, but it must be difficult to be pivotal to a company’s future when you are probably not on the board and quite likely to be out of a job anyway if and when your company gets taken over.

Law firm partners, in contrast, have an enviable freedom and an almost cast-iron ticket to great lifelong earnings as long as they are good at what they do and manage their careers appropriately. In-house, you are always working for someone else who is more important than you, while in private practice you never need be.

External threats – the accountants, principally – are like e-cigs: great in theory, but no substitute for the real thing, red in tooth, claw and litigation department.

And technology? Well, not to rain on your silicon parade mate, but the technology to warp, destroy and remake the legal profession has been around for years. And yet the number of lawyers hasn’t been reduced, the cost of Big Law services has only increased and the use of so-called Big Data by law firms seems to be non-existent.

Pause for thought

So next time you’re thinking of entering your perfectly creditable but hardly earth-shattering new invoicing system for an innovation award, why not stop, get yourself a nice strong coffee and a couple of the most awkward and argumentative colleagues you can find, and go and sit in a room and have a proper, elemental discussion about what
clients might find really innovative.

And I don’t mean tongue-scraper-on-the-back-of-your-toothbrush innovative, but the kind of innovative that destroys – literally puts out of business – your competition. Then build it. And screw the award. You won’t need it.

By Mark Brandon, strategy director, Overture London