One of my fondest memories from Washington University (in St. Louis!) was jumping up and down in a throng of thousands of students while we belted out “Istanbul Not Constantinople” during an outdoor concert by the alternative rock band “They Might Be Giants” (I was sad to recently learn that they didn’t write this great song, but only covered it; it was written by Nat Simon and originally performed by The Four Lads).  Here’s a telling lyric for lawyers:

“Why did Constantinople get the works?  That’s nobody’s business but the Turks.”

Alternative rock bands like They Might Be Giants originally emerged because they didn’t fit into any of the genres established by the recording industry/radio axis of musical power, even though listeners yearned for something different.  Alternative music also flowed from punk rock, which itself emerged out of a negative reaction to the dominance of disco and other overly sentimental musical styles.  The music business, like any other, is subject to market forces.  And if an entire industry is not catering to its customers’ desires, then a new, young Turk player will emerge to do so, subverting and reinventing the old Constantinoplesque industry along the way.

Triggered by this NY Times article, people in the legal world are currently wondering if law firms will end the billable hour model and move to flat fees and other alternative approaches (click here for a list of articles on this topic).  Many partners at major law firms are extremely fearful that they are looking at significantly less profits if they switch to alternative fees.  I actually think that partners do not have to accept a drop-off.  They do, though, need to fundamentally restructure the way they do business to make the same or more money than they have with the traditional approach.  And they are tremendously resistant to do so.

I used to be an in-house lawyer at a Fortune 500 company.  On one occasion I had a real estate law firm pitch me.  The partner asked, “What can we do to get your business?” I said, “I think a lot of the word processing and the back and forth on contract versions is a big waste of time. I’d love to see a firm that uses contract creation automation software, and has all of its typical contracts and likely negotiation positions loaded into the software for automatic drafting, using a regularly updated knowledge management system.  I’d also love it if you had an extranet to store all contract versions so we can skip the old email trap of zapping countless drafts back and forth that leads to version control nightmares.  And I’d like you to bill me a flat fee determined up front for each matter.”

He blinked hard, swallowed, and said, “What else can we do?”

His question revealed the tremendous resistance to change in the legal world, where firms are stubbornly committed to a business model that does not meet their clients’ desires for better efficiency and predictable charges.  The irony is that if a firm emerges that would actually embrace an alternative approach, it would have a huge competitive advantage in the marketplace and, in the long run, would make more money by growing its business.  At some point a full service law firm or outsourcing legal services company will step up and seize this competitive advantage (we’re already seeing up front flat fee alternatives from partners like Jay Shepherd of The Shepherd Law Group, a highly regarded Boston employment law firm).

The biggest problem this new player would face is that all of the most desirable clients, major American corporations, have internal legal departments that choose which firm to hire, and all of these departments are populated by lawyers who used to work for law firms following the traditional model.  They’ve all been conditioned to believe that billable hours, unpredictable budgets, and lack of efficiency are par for the course, so they won’t be interested in hiring this new player. Who will then?

Procurement.  Right now, almost everything a major company buys, from cardboard boxes to management consulting services, is handled by a strategic sourcing manager who limits the number of vendors and uses that leverage to negotiate improved quality and lower cost.  These procurement managers are chomping at the bit to control legal services, but, so far, most law departments have fended them off by making the law seem too mystical to tame.  These managers would be the new player’s target market.  If the law department tries to fend off their desire to hire, then the company will have a showdown.  The arbiter will be the Chief Financial Officer, who, as long as she complies with the law, is almost always more powerful than anyone in the legal department.

And Chief Financial Officers love savings.  And Istanbul.  Not Constantinople.

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