Thursday, 29 September 2011
I am fortunate enough to work in an organisation full of experts. About several hundred of them all told. They know rather a lot about what makes the financial world tick. In fact they often predict how it will tick and why. And sometimes their thoughts move markets. It is a privilege to work amongst them.
You can buy this expertise quite readily. It costs about £300 to buy an FT.com subscription and read as much of this expertise as you like for a whole, entire year. Hundreds and thousands of articles, most of them analytical, detailed and bathed in expert commentary. FT plug over.
Contrast this with the organisation I used to work in, contrast it with any Big Law firm. They too are full of experts. They know quite a lot about how the law works. They too can sometimes predict how it will tick and their thoughts can help their clients move markets, even if they cannot do it themselves.
You cannot however buy that expertise very readily. £300 will get you about an hour's time of someone who has about 4 or 5 years experience and they probably won't have time to tell you what you need to know in that short hour. One hour.
Which would you rather buy with your £300? What sounds like better value? Even putting aside my subjective bias to my current employer, it is a bit of a proverbial no-brainer isn't it? More economic and financial analysis than you can possibly read and which will provide you with a year-long competitive advantage, or an hour on the phone with a lawyer.
Why is there such a discrepancy in the price and value of journalism compared to professional services? I propose that it is in no small way down to custom and practice. Down to habitual lazy behaviour and assumptions which are not challenged by the clients that instruct law firms. If you need any evidence of this behaviour, I recommend this excellent piece on Law.com by Mark Harris, the CEO of Axiom, which states that between 1998 and 2008 law firm pricing increased by 70 per cent, in contrast to a rise in non-legal business costs of 20 per cent over the same period.
One such un-challenged assumption is this – that the level of compensation payable in Big Law Firms is reasonable. That in Big Law Firms, it is reasonable for PEP to be (give or take) no less than half a million pounds, that it is reasonable for newly qualified solicitors to be paid salaries in the region of £60,000 according to Roll on Friday’s data. These assumptions seem reasonable at face value, but it is these assumptions which allow (or even require) law firms to charge in one hour what the FT charges a subscriber in one year. Contrastingly, there is no assumption in news organisations that a large proportion of the experts within the workforce must earn high six or even seven figure salaries (or drawings to be technically correct), which is reflected in the price of the product.
In-house lawyers don't much like the hourly rate model. There are of course plenty of alternatives to it these days but most of those alternatives are still priced on a "time spent" basis with the spectre of the hourly rate lurking in the background. Law firm business models require a certain amount of money to be generated by a certain amount of time spent in order to fund the high compensation packages referred to.
I wonder if in-house lawyers are wasting our time focussing on the hourly rate model. I wonder if instead we should be spending our time focussing on the reasonableness of the assumptions which exist in the marketplace about what private practice lawyers "should" earn. But we don't, because market norms exist which make it abnormal to challenge such assumptions.
If news did not exist today as a service and were "invented" tomorrow, I'm confident it wouldn't be priced on the basis it is today. What CEO of NewsCo (geddit?) would assemble a few hundred experts and ask them to write for a year in order to assemble a product that would sell for about one or two pounds a pop? But because we are used to news being relatively cheap, it is accepted that it is cheap, despite the immense value created by thoughtful commentary and analysis of news.
It's time to drive down law firm rates. But not just by reference to the hourly rate. By reference to the irrational assumption that it is acceptable for clients to help their lawyers become millionaires.
Let me add an important rider. I appreciate that Big Law lawyers are intelligent, work extremely hard and often at unsociable hours. I accept that there is a price to pay to be able to call on that expertise at any hour, any day of the week. And anyone working at that level of intensity has a right to expect a high level of compensation, otherwise why bother frankly. So I'm not calling for the high end of the legal profession to adopt some kind of Marxist ideology. But I am challenging the assumptions that exist in the legal marketplace about the "normal" levels of compensation payable.
A footnote for any aggrieved solicitors reading this who don't work in Big Law. This post is about Big Law. It is not intended as a criticism of the thousands of UK solicitors who ply their trade on the high street or elsewhere for more modest compensation. And if you are an aggrieved solicitor reading this and working in Big Law, then feel free to pull my arguments apart in the comments section below.
Friday, 16 September 2011
I used to be an IT lawyer. Before I moved in-house and developed a specialism in the legal vertical known as jackofalltradeslaw. But even now, I like to think I know the difference between a software licence and a support agreement and most of the time I get it right.
IT law used to be easy if you were acting customer-side. You stuck in some wacking great warranties which referred to what IT lawyers biblically defined as "the Specification". You drafted 3 pages of accepance testing provisions which no right minded individual would ever want to try and follow. And if you really knew your onions you blathered on about the criticality of escrow and forced the client to spend money with the NCC depositing source code which no-one would ever be able to really use anyway. All safe in the knowledge that if the project went wrong then best case the supplier was firmly on the hook or worst case you could blame the client for providing a poor Specification (anyone ever seen a good one?), not doing the acceptance testing properly or forgetting to deposit the seventeenth version of the code update into escrow. Job done.
IT software/maintenance/services also used to be expensive. Which meant, when acting customer side, one could negotiate a liability cap that had meaning and could cause the supplier a degree of pain if they failed to deliver a product on time which danced and sang as the biblical Specification said it would.
On the whole, the legal risk in IT agreements used to be balanced, more or less, in favour of the customer. And as in-house counsel at a company which buys IT services this was not an unhappy situation to be in.
Unfortunately though from a customer perspective this is no longer the case.
First came the web, HTML, XML and all that followed. Suddenly the words "source code escrow" seemed to have any real resonance. Although in practical terms the benefits to the customer of source code access was always questionable, the threat of an escrow trigger hanging over the supplier was a useful incentive to ensure that suppliers kept their side of the bargain, simply because they always hated the idea of handing over the crown jewels in a wost case scenario. I think (and willingly stand to be corrected by any devs out there) that the value of the jewels reduced when the commercial web came along and HTML coding started to replace more proprietary software packages.
Then came open source. It had always been in the background a bit, but with the advent of the web came an increased usage of open source by the dev heads. Not only did this really put the final nail in the escrow coffin but it also allowed suppliers to start cutting back the warranties they provided their customers, even the customary IPR warranty backed up by the accompanying juicy indemnity.
The negotiation see-saw had begun to tip, sending the customer up in the air. And if a lack of warranties in respect of source code was not enough, now the customer also had to worry about ensuring compliance with third party open source licences, some of which require the customer to deposit modifications of the open source back into the software community.
Still, all was not lost from a customer perspective. Customers still had our theoretical hundred page specifications to rely on (often of course drafted as six bullet points with "full specification to be agreed by the parties within 30 days of signature of this agreement". Yeah, right) and the lovely warranties that went with it. Didn't we?
Well, we did until the concept of agile development started to become mainstream. For the uninitiated, agile development works using the concept of "sprints". A sprint is broadly a series of project segments or stages which take a project from conceptual idea to final delivery. But the problem for lawyers is that the project is defined and developed in the course of those sprints. There is no specification at the beginning of the project, it is iterated and re-iterated over the course of a project. The customer pays the supplier to develop something that does not really become properly defined until some way into the project. So by now, customer-side lawyers also had to throw their specification warranties out of the window. But we do at least get to define the word "Scrum Master" to show that we were still down with The IT Crowd.
During the time that these developments were taking place, the cost of IT services was reducing. Good news for customers. Bad news for customer-side lawyers, because as project values came down, so too did the value of liability caps, sometimes to such a degree that it would barely be worth suing the supplier even if a project did go a little bit Pete Tong. Luckily (*coughs*) that rarely happens in IT projects so would never be an issue in practice.
And now we have "the cloud". Whoever came up with this term deserves a creativity medal for finding a way of making an IT solution based on thousands of inter-connected boxes across the world sound exciting. The Cloud has a futuristic, almost mythical air about it, it makes you think This Is The Future. The reality for customers is that your supplier is now not even telling you where they are hosting your data or website. But don't worry, it's The Cloud so all will be well my friend.
Except the cloud requires the customer to carry out a barrel load of data protection due diligence as data flies across the world and, better still, suppliers seek to protect their liability position even further both by way of reduced caps, both because prices are yet again reduced and also cloud providers are able to say, in a way they couldn't in the days of more traditional outsourced hosting, we are not taking full responsibility for the entire gig.
As a result, the customer-side lawyer's role is becoming one of due diligence and risk identification, rather than one of negotiaton.
A colleague of mine described it thus: certain IT services are now effectively akin to buying a utility service. Does your electricity provider offer service credits if the mains go down? Will the water company promise service uptime? Will your telco agree to fix a problem with the line within a defined period? Of course not. Buying certain IT services, even some critical ones, is just like ordering an extra Sky channel.
It's obviously wrong to consider the change in landscape solely or even primarily from a lawyer's perspective. Customer-side CIOs are in a happy place. The tech has improved which keeps the CIO happy. The cost has gone down which keeps the CFO happy. The ordering process is easy which keeps the procurement team happy. And the customer-side lawyer must just learn to wrestle with the philosophical reality that commoditised utility service contracts aren't really negotiable - which naturally makes us unhappy. But no-one is going to lose too much sleep over that.
Anyone got a solution? Am I getting it wrong? Answers on a post-card please. Or even better (out-housers) in an email – put it down to pro bono or biz dev, I promise not to tell anyone.