The Death of the Giant Firm?

Since our grade is partly based on whether we’re ethical, I must credit Sandor for arguing that the legal product includes trust, and Justin Colannino for predicting that Wexis will be assimilated into Googles and Wikipedias.
Now that I'm going online to upload this, I just discovered i got a b minus in torts, so take my arguments with a heavy dose of skepticism.

Eben believes that giant corporate firms will be extinct by the time we inherit them. I have wondered what could make them obsolete.

First, why were they successful? The richest corporations want their legal work mass-produced and custom-fit. Big firms accommodate these clients by exploiting economies of scale. The deep bench supplies apprentices to do drudge work for their mentors, and packing specialists under one roof improves the cross-pollination their ideas, as at interdisciplinary research universities or think tanks.

I believe that Eben believes that the cheap exchange of information will abolish the ownership of symbolic representations: when the “exclusive” right to use becomes unenforceable, the right itself becomes a __. . Then the brokers and networkers of creative thought will become obsolete. Blogs broke the media conglomerate’s monopoly on distributing news. Recording companies will go the way of switchboard operators. Middle Management is being crushed by flattening corporate hierarchies. The continental investment banks ceded power to an archipelago of hedge funds, run by irreverent geniuses like my three college classmates who started trading currencies together as second semester seniors.

But creative work will never be socialized, at least until someone invents mind-reading or artificial intelligence. Hedge fund managers will still need intuition to predict capital flow from commercial data; managers will need insight to market and innovate; reporters will always rely on pluck to formulate questions, anticipate the scene of the crime, and research non-symbolic facts; songwriters will always daydream and smoke pot.

So I must rephrase my original question: what is essential to corporate legal services, and what structure and scale will generate that most efficiently?

Some legal products are not valued for being “good,” but for being “better” than the competitor’s. When the litigator’s client is committed to reaching a final verdict, or when the lobbyist or appellant proposes to reform the law for the indefinite future, his mandate is to produce a binary outcome (winning). Legally educated persons have a monopoly in the production of these decisions, because their future creative product is inalienable. The demand for a given litigator will be proportional to his or her relative ability to deny the opposite outcome to the competitor’s litigator.

Eben writes (and I add emphasis):
Your generation, unlike all previous generations of lawyers in New York City, will be competing for daily bread against well-trained lawyers in New Delhi and Bombay. The savagery of leverage will soon make corporate finance practice and large litigation support--in general, in fact, the back office practice on which large firms currently thrive—a practice you can't afford to be in. The legal industry is going to look in future more like the garment industry, and more so at its top than it will at its bottom. The jobs that have been considered elite for two generations, and for which your institution is best equipped to train you, are about to globalize elsewhere, leaving a steeper pyramid with much less room at the top for people like you.

The marginal return to transactional work of an investment in legal education will certainly diminish. The mandate for transactional work is not binary: it is to maximize income through contract negotiation [?]. Ivy-educated lawyers will be only slightly more valuable, and much more costly, than graduates of third-tier schools, lawyers in India, and software.

But lawmaking by litigation, unlike transactional negotiations, does not produce value that is easily measured and compared to the costs of production. It implicates the very existence of a stream of value for the indefinite future. It rallies powerful opposing interests. It is war by other means. War leads to arms races, and arms races get out of control. Corporations with immeasurably large interests in changing the law will continue to pay unconscionably large sums to control the “best” possible sources of creative legal ideas.

Law firms, congress, and law schools blaze the path of the law. But when the temptation of corporate money influences the direction they choose, it is only incidental that the partner signs our paychecks, the congressman signs the bill, and Schizer signs our diploma.

1] better is all that’s needed 2] social values are also [high value—uncomputable value? Invaluable? Priceless?]. Whether the pursuit of vast financial value or the pursuit of immeasurable social value is a stronger temptation for the lawyers, legislators, and educators who blaze the path of the law is a question ultimately in their hands.

may reduce the law firm’s comparative advantage over the law market in brokering and networking legal ideas.

Those other innovations were in distribution channels—_ _ . The lawyer’s “distribution channel” is the neurons in judges’ and jurors’ brains. Those other innovations could be objectively measured: compare _ to the market __. But every legal case is unique

Sandor: PROBLEM:Reputation / black box SOLUTIONS: break open black box How much of our profession will be “opened up” in this way?

cf. Coase: market or firm? An innovation (here, internet) doesn’t just lower cost of market—it lowers cost of firm. And so firm may become consolidated (e.g. internal Wikis ...)

-- AndrewGradman - 19 Jan 2008

I'm not awake enough to address the main question, but I just want to note that Wexis may not disappear as much as add value to hang on--for example, headnotes, the key number index, and so on. The core of the judicial opinions--public domain--is increasingly available free on court websites and on Columbia's own altlaw.org, but until someone starts writing public domain headnotes and indices (or until someone develops a MUCH smarter search for law), Wexis will be here to stay (without even mentioning all the secondary sources that will need to be freed or still bought and made available in print). Anyway, until someone starts writing these for free, competitors will need to pay someone to write their own or pay West etc. and keep feeding them.

-- DanielHarris - 19 Jan 2008

Back to the original question Andrew posed: I'm not entirely sure why we should expect the death of the law firm anytime soon, either. Anyone have ideas about why Eben said this? Or your own thoughts on the matter?

-- KateVershov - 19 Jan 2008

I'll explain in more detail what I actually meant, which isn't what Andrew assumed, next Wednesday. For the moment, let me just restate it, which may help: Your generation, unlike all previous generations of lawyers in New York City, will be competing for daily bread against well-trained lawyers in New Delhi and Bombay. The savagery of leverage will soon make corporate finance practice and large litigation support--in general, in fact, the back office practice on which large firms currently thrive--a practice you can't afford to be in. The legal industry is going to look in future more like the garment industry, and more so at its top than it will at its bottom. The jobs that have been considered elite for two generations, and for which your institution is best equipped to train you, are about to globalize elsewhere, leaving a steeper pyramid with much less room at the top for people like you.

-- EbenMoglen - 19 Jan 2008

If there's pre-class interest in reading more about this, I found this article after 2 seconds on Google: http://money.cnn.com/2004/10/14/news/economy/lawyer_outsourcing/?cnn=yes

-- MakalikaNaholowaa - 20 Jan 2008

Here is a link to an article about the changes in the law school curriculum that have been taking place in response to some of the issues discussed here. I am interested in hearing more from people about Columbia's position in revising the law school curriculum to address such 'world changes' as well as the effect such changes can be expected to have at a practical level.

http://www.nytimes.com/2007/10/31/education/31lawschool.html?ex=1352437200&en=07e3ca16683dd3b5&ei=5124&partner=permalink&exprod=permalink

-- CarinaWallance - 22 Jan 2008

Eben,

I started to write a response, but then went to the link provided by Makalika. This quote summarizes what I wanted to say:

"Instead, offshoring is likely to hit low-level work typically performed by legal assistants, paralegals and possibly even junior lawyers who cut their teeth on rote assignments."

At big firms, I read this as doc review. With the current ABA rules in place, how would overseas firms would be able to provide the same sort of transactional and litigation services in the U.S. that U.S. firms provide without hiring American lawyers at American salaries?

Further, isn't a substantial portion of document review already outsourced to temps? Just typing "temp doc review" into google yields pages of job postings and comments about how awful the work is. My point is that since much of this work is already outsourced to graduates whose employment prospects were poor from their respective schools, how does moving it overseas negatively impact the large firms? Additionally, if the above is true, it seems like the impact will be more at the bottom than the top.

Finally, if large firms are limiting their outsourcing to doc review, how does this mean the "death" of big firms? It seems as though quite the opposite is true: big firm partners stand to greatly increase profits per partner by paying a lawyer in India $10/hour to review documents instead of hiring an American temp agency.

Is your point that, over time, more and more work will become outsourced and that eventually clients will feel comfortable having Indian lawyers conduct M&A deals (for example) from New Delhi? It seems as though the necessary radical shift in client perception as well as the difficulty in overcoming the inertia of the legal "guild" would mean that such a change would take somewhat longer than 10 years.

Thoughts?

-- SandorMarton - 22 Jan 2008

• Yes. I think your analysis would be right if your factual speculations were accurate. As the topic interests people, which it should, we'll talk about it in class on Wednesday.
  -- EbenMoglen - 22 Jan 2008

No matter what happens to big firms in general, it seems that there will be a market for lawyers trained a ivy and other top tiered schools. For some reason or another, society seems to place value in the so-called "pedigree" or status of a person, object, etc. Just looking at the "luxury goods" markets, why is there a market for Luis Vuitton and Chloe handbags when one can get the same bag with the same quality for about $1000 less? Why is there a market for BMW and Mercedes-Benz when one can purchase a Honda or Toyota for half the price of the former? I am not saying that everyone or even many people will opt for the more expensive option, but I do think that there will be a substantial amount of demand, at least enough demand to allow for the perpetuation of the current system in place. I think there is something to be said about the value society places on the name attached to certain institutions and the price it is willing to pay for them. Even with all the increased competition from lawyers of other countries, I feel that there will still be a market for lawyers "top tier schools."

-- ChristinaYoun - 22 Jan 2008

The only possible flaw in that analysis is if the same factor that destroys big firms does so by democratizing information to such an extent that developing the ability to predict what courts will do becomes attainable to the average person. Then, you wouldn't need a lawyer at all (it would be like if we developed a kangaroo-style pouch, causing the market for bags to plummet).

-- AdamCarlis - 23 Jan 2008

I respond to Christina by saying two things. First, I agree that there is a branding market out there, and that name of where you went to school can open doors for you, but I agree with Adam that this need not always be so. So the question then becomes, what else (besides go to a top school) can we do to to insulate ourselves in job stability and happiness? I think that Eben hit the nail on the head when he said that the key is to learn to be 'flexible' and to be able to do a variety of different things for different clients. There is a great saying that I think expresses this well: "the more you can do, the more you can do". If the 'death of firms' occurs, the pedigree won't matter as much as what you can do for your clients.

-- JustinColannino - 23 Jan 2008