The Future of Legal Services

William D. HendersonProfessor, Indiana University Maurer School of LawEditor, Legal EvolutionCo-Founder, Institute for the Future of Law Practice (IFLP)

Presented to

Institute for the Advancement of the American Legal System (IAALS)

June 25, 2020

Our industry is evolving

ONE-TO-ONE CONSULTATIVE

ONE-TO-MANY PRODUCTS AND SERVICES

Uncomfortable disjunctionMissing key skills & business models

Two Market Segments

Chicago Lawyers I Chicago Lawyers II

$70 Billion

Indviduals(n =325 million)

$70 Billion

Individuals (n = 325 million)

$220 Billion

Businesses & Organizations(n = 6 million)

$184 Billion

Small, Medium, Large Businesses

(n = 5.9 million)

$36 Billion

Fortune 500(n = 500)

$0 $50 $100 $150 $200 $250

$290 Billion US Legal MarketEstimate of Current U.S. Legal Services Market

Based 2012 Economic Census data adjusted upward based on growth in U.S. GDP

2007 2012

% of Law Office Revenue by Type of Client

© Legal Evolution PBCSource: US Census Bureau Economic Survey (2007, 2012)

PeopleLaw Lawyers struggling to earn a living.

$260/Hour

2.3 Hours

1.9 Hours

1.6 Hours

$422/Day

2017 Clio Legal Trends Report

What went into the 2017 Legal Trends Report?

1,026,038 matters

10,981,286.13 hours billed

$2,562,864,876.43 in billables

8 award-winning data scientists

29% of 8 Hours

82% of Hours Worked

86% of Hours Billed

Hourly Rate Hours Billed Collected Income

State courts in melt down.

NCSC The Landscape of Civil Litigation in State Courts

“The picture of civil litigation that emerges from the Landscape dataset confirms the longstanding criticism that the civil justice system takes too long and costs too much.”

$2,441 $5,424 75%median judgment average judgment of cases had at least

one self-reported party

Source: data from the Annual Reports of the Illinois Courts, graph generated by Legal Evolution PBC

633,659

791,412

429,649

0

100,000

200,000

300,000

400,000

500,000

600,000

700,000

800,000

900,000

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

Civil Case Filings in the Illinois Circuit Courts

Total Cases Filed 2-year Moving Avg.

Legal Complexity

1990 2020 2050

Experience and Perception

Economic Growth

Complexity

© Legal Evolution PBC

Search for substitutes to

deal with cost and quality

Reality

Rise of the Large Firms

Higher profits

© Legal Evolution PBC

Legal Complexity

1990 2020 2050

Experience and Perception

Economic Growth

Complexity

Reality

© Legal Evolution PBC

Legal Complexity

1990 2020 2050

Experience and Perception

Economic Growth

Data, process, technology

Division of labor, specialization

Complexity

32.4%

54.9%

203.3%

-25%

0%

25%

50%

75%

100%

125%

150%

175%

200%

225%

19971998

19992000

20012002

20032004

20052006

20072008

20092010

20112012

20132014

20152016

20172018

% CHANGE IN NUMBER OF EMPLOYED LAWYERSBY PRACTICE SETTING, 1997 TO 2018

Law Firms Government In-House

© Legal Evolution PBC

Document Automation

Document Analysis Workflow Tools

Communication & Collaboration

Document Management

Transaction Management

Time & Billing

Security & Compliance

Business Intelligence

Case Management

eDiscoveryLegal Research

Smart Contracts

Proliferation of Legal Tech Point Solutions

Impact on Entry-Level Private Practice Jobs

Number of Entry-Level Jobs in Private Practice by Law Firm Size

Data Source: NALP© Legal Evolution PBC

4,745 5,193 5,156 3,750 2,856 3,636 3,980 3,952 4,007 4,238 4,606 4,773

8,829

5,873

7,037

5,556

-

5,000

10,000

15,000

20,000

25,000

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

500+ lawyers in firm 11 to 500 1-10 lawyers

27,756

46,776

33,432 *

-

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

50,000

1973

1974

1975

1976

1977

1978

1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

Year of Graduation

Number of Law Graduates from ABA-Accredited Law Schools, 1973 to 2020

Static Learning → Poor Job Prospects → Massive Decline in Enrollment

Lagging Legal Productivity and “Cost Disease”

1997 Dodge Caravan

2003 VW Passat

2014 Honda Accord

“Human ingenuity has devised ways to reduce the labor necessary to produce an automobile, but no one has succeeded in decreasing the human effort expended at a live performance of a 45-minute Schubert quartet to much below a total of 3 man-hours.” -- William J. Baumol & William G. Bowen, Performing Arts: The

Economic Dilemma (1966)

Source: Data from U.S. Bureau of Labor Statistics, calculations by Legal Evolution PBC

218.49

334.48

609.10

373.17

50.00

150.00

250.00

350.00

450.00

550.00

650.00

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

Cost of Legal Services, Medical Care, and College Tuition vs CPI-U1986 to 2016

CPI-U Legal Services Medical Care College Tuition

1986 = 100

Source: Data from U.S. Bureau of Labor Statistics, calculations by Legal Evolution PBC

334.5

218.5

0.435%

0.245%

0.00%

0.10%

0.20%

0.30%

0.40%

0.50%

0.60%

0.70%

0.80%

0.90%

1.00%

1.10%

1.20%

1.30%

1.40%

1.50%

0.00

50.00

100.00

150.00

200.00

250.00

300.00

350.00

400.00

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

Legal Services Compared to Overall CPI-U, 1986 to 2016Relative Importance of Legal Services in CPI Basket

Legal Services Overall CPI-U CPI-U Relative Importance of Legal Services

The “DIY” (Do-It-Yourself) Legal Economy

A2J

Is access to justice a design problem? (099), June 23, 2019https://www.legalevolution.org/2019/06/is-access-to-justice-a-design-problem-099/

DIAGNOSIS, INFO & SELF-HELP

PARTY-TO-PARTY NEGOTIATION

FACILITATION DECISION

SolutionExplorer

Online discussion

Facilitated negotiation & decision preparation

Adjudication

1 2 3 4

AutomationDispute Volumes

Seamless, Responsive Design

Participant Satisfaction

(to date)

The Legal Profession has problems.

Who do we talk to?

CourtsPrimarily States

Mix of Appointed and Elected Justices

Design and Functioning of Legal

System

Bar AssociationsState and National

Advice & Expertise

LegislaturesPrimarily States

Funding

Market Structure

Ethics Rules 5.4, 5.5, 5.6

System for Resolving Disputes

Rules of Procedures

Legal Education Requirements

Rules for Bar Admission

Simplified Model of Legal Profession Regulation

Rule Makers versus Risk Takers (140) Legal Evolution, March 15, 2020https://www.legalevolution.org/2020/03/rule-makers-versus-risk-takers-140/

Susskind’s five stages of Evolution

Bespoke Standardized Systematized Packaged Commoditized

One-to-One One-to-Many

Practical Law Company was pure standardization. Sold to Thomson Reuters

in 2013 for $450M.

$1-5M profits per partner for large firms, but static.

Much work going in-house.

PeopleLaw sector on decline.

Multidisciplinary Teams• Information technology• Systems engineering• Finance•Marketing• Project management• Consulting• Law

New Business Models• Need sources of capital• Increased risk tolerance• Highly specialized talent that collaborates across domains• Regulatory barriers• Complex technical sales (L2L)•Mass marketing (L2C)

critical need for leadership

Source: Richard Susskind, Tomorrow’s Lawyers (1st ed. 2012)

1 in 10 US healthcare workers have a medical degree 8 in 10 US legal service

workers have a law degree

18.4% 29.9% 33.5% 8.9% 9.3%

High School Diploma + On The Job Training

HIGH SCHOOL DIPLOMA + ON THE JOB TRAINING

ASSOCIATES DEGREE BACHELORS DEGREE MASTERS OR DOCTORATE

MD OR DO DEGREE

Associates Degree Bachelors Degree

LP & LV Nurses 701,690Medical Assistants 673,660EMTs & Paramedics 257,210Medical Records &Health Info Techs 208,650Radiologic Technologists 205,590Phlebotomists 125,280Other Health Technologists 125,270Surgical Technologists 110,160Massage Therapists 105,160Physical Therapy Assistants 94,250Psychiatric Technicians 71,360Diagnostic Medical Sonographers 71,130Cardiovascular Technologists & Techs 56,560Medical Transcriptionists 53,730Occ. Therapy Assistants 42,660MRI Technologists 38,540Dietetic Techs 33,540Other Healthcare Practitioners & Techs 32,680Nuclear Medicine Technologists 18,810Radiation Therapists 18,260Therapists, All Other 11,950Respiratory Therapy Techs 9,090

Healthcare workers occupy well-developed career paths along the entire educational spectrum.

Registered Nurses 2,951,960Clinical Lab. Technologists Techs 321,220Occ. Health & Safety Specialists 88,390Athletic Trainers 26,890Recreational Therapists 18,840Occ. Health & Safety Tech. 18,020Exercise Physiologists 6,740

Masters or Doctorate

Physical Therapists 228,600Nurse Practitioners 179,650Speech-Language Pathologists 146,900Occupational Therapists 126,900Physician Assistants 114,710Nurse Anesthetists 43,520Other Diagnosing Practitioners 36,680Audiologists 13,300Podiatrists 9,500Orthotists and Prosthetists 8,830Nurse Midwives 6,250Genetic Counselors 2,640

MD or DO Degree

Physicians 954,000Sources: Number of MDs or DOs from Federation of State Medical Boards (2016); all other occupations from Bureau of Labor Statistics (2018).

Nursing Assistants 1,450,960Other Healthcare Sup Workers 88,990Opticians, Dispensing 72,250Psychiatric Aides 56,910Medical Equipment Preparers 55,610Ophthalmic Medical Technicians 52,890Orderlies 50,100Physical Therapist Aide 47,260Occupational Therapy Aides 7,700Hearing Aid Specialists 7,680

And a vast network of credentialing bodies fill the gap between education and practice.

20.7% 79.3%ASSOCIATES DEGREE JD DEGREE

Associates Degree

Paralegals and Legal Assistants 309,940All other Legal Support Workers 43,150

In legal services, there are only two career paths. This is not enough for an efficient, cost-effective system.

JD Degree

Lawyers 1,352,027

Sources: Number of licensed, active lawyers from American Bar Association (2019); paralegals, legal assistants, and other legal support workers from the Bureau of Labor Statistics (2018).

Law must become multidisciplinary

EMERGINGCustomize

Synthetic Biology

GROWTHSpecialize

Virtual Reality

MATUREStandardizeSecurities

SATURATEDCommoditize

Debt Collection

SPECIALTYIntellectually Demanding

Frontier WorkValue-Oriented COMMODITY

Well-DefinedRoutine Work

Volume-Oriented

Bring Work In-house?

LIFE CYCLE OF A PRACTICE AREA

EMERGING GROWTH MATURE SATURATED

Type 0 Innovation

Type 1 Innovation

LIFE CYCLE OF A PRACTICE AREA

Type 0: Adapting law to fit new social, political, and economic complexities

Type 1: Improving the quality, cost, and delivery of existing legal solutions

Type 1

Type 0

Bespoke

Commoditized

Type 0

Type 1Operational

SOPHISTICATED CORPORATE WORK

Type of Professional (Y)

Lawyers

Allied Professionals

Type of Client

(X)

Individuals Small Business Middle Market Publicly held Global 500

Paralegal & support staff

Finance / Acct / ITMarketing / Bus. Dev. /

Client ExperienceOperations (experts in

process, PM, sourcing, cost accounting, pricing)

Counsel

Associates

Partners

Software Engineers

Data Scientists

Staff Attorneys

Alli

ed P

rofe

ssio

nals

HUMAN CAPITAL MAP FOR ONE-TO-MANY SOLUTIONS

(X)Individuals Small Business Middle Market Publicly held Global 500

Allie

d Pr

ofes

siona

lsLic

ense

d La

wyer

s

Type 0 Innovation

Type 1 Innovation

Range of foundational knowledgeHUMAN CAPITAL MAP FOR ONE-TO-MANY SOLUTIONS(Y)

Thank You!

@wihenderwihender@indiana.edu