*6.1. A Corporate Law Firm*

Even though large law firms have experienced important structural changes in the surrounding environment, they presently maintain their traditional organizational form, the partnership. Scholars have largely discussed the virtues of this form and the reason of its stickiness despite a number of societal forces pushing firms in different directions.<sup>103</sup> Starting from the late 1980s, however, sociologists such as Robert Nelson begun to underline the inherent tensions confronting the large law firm in the light of the increased bureaucratization of the profession.<sup>104</sup> In particular, Nelson found that the structural changes marking the bureaucratization of firms—specialization, departmentalization, and increasing stratification in the earnings and authority of partners—run counter to more traditional conceptions of the professional partnership in which all partners are, in some sense, peers.<sup>105</sup>

In my view, the recent advances in technological developments, together with changing social trends at the level of cultural, educational, and aspirational capitals of younger professionals, exacerbate the tension inherent within this organizational arrangement. The need of large investments in new technologies in order to maintain a competitive advantage becomes greater and greater, putting

<sup>101</sup> (Henderson and Evan 2017) See also, (Baker and Parkin 2006).

<sup>102</sup> Ibid.

<sup>103</sup> For a good review of this literature and an informed discussion on the values of the partnership, see: (Empson 2007) discussing the ethos of partnership and its capacity of balancing the competing claims of three sets of stakeholders: professionals, owners, and clients.

<sup>104</sup> (Nelson 1988).

<sup>105</sup> Ibid. p 4. For a more recent critique, see (Molot 2014).

pressure on the traditional business model of large law firms. A number of my interviewees confessed that the classic business model of the partnership is proving itself unsuited for handling these new developments in an effective way. This is because the classic partnership model is characterized by an inherent "short-termism", which derives from its structural features. Law firm partners, in fact, view their annual draws for their productive working years as a large part of their interest in the firm.<sup>106</sup> While this was perhaps always the case, the recent developments in terms of lateral mobility of partners and associates have made this issue more evident, as today partners with power and remunerative clients would likely leave the firm if asked to give up their yearly income to invest in future, and uncertain, earnings.<sup>107</sup> Finally, more often than not, partners with power are those with a number of years of seniority and thus closer to retirement, with the result that their interest in long-term investments is even thinner and their familiarity with legal-tech rather limited.<sup>108</sup> This was expressed quite clearly by a senior partner in a large Danish law firm when questioned about the receptiveness of his fellow partners to the proposals of investing in new technologies.

A: the main problem is the conservativism in our area. People say, well, doesn't it work out pretty fine as it is? Well, they might be right, but my concern is that the level of awareness in our firm if pretty low. I have been talking to partners in our area about this. We are about 40 partners here. I think only three or four of whom I met have [the enforcement of new technologies] as main priority. People, you know, are pretty occupied, they have their cases, the business is going pretty well, but my concern is that, suddenly, one of our competitors has a breakthrough in using these systems and it becomes suddenly a trend in the market that you need to offer this and we are not ready. So you can actually be quite rapidly out of business if you are not able to prepare. My main message to the organization is, even though you are very busy, you need to spend time on this.

Q: And, how is the organization responding to your concerns?

A: Well, you know, of course people are thinking about it, but in the end they say, *mañana*. That will happen when I will have retired.<sup>109</sup>

Similar concerns were expressed by a former lawyer of an English large law firm, who transitioned to a smaller but tech-based and innovative law firm. In describing his personal and professional trajectory, this statement was given:

A: Well, I came in in the firm [one of the biggest corporate law firm at the time] as an external recruit to create something different. They needed to leverage my knowledge, experience, and expertise in other areas of the law and start shaping it for the very large corporate global clients they had. And I quickly realized that what I had already been doing in my career, namely, mapping trends, patterns, and core processes against human behavior and against different kinds of business structures and processes, was equally valuable for large corporate firms. So, I started to use technology more and more to help and assist clients. I started training those clients and show them they should not need to use me as a lawyer in certain particular areas of operation of their business [implying that the technology would do that for them]. I told them that I would just require a training fee and as case law would change, as rules would change, a new best practice would be issued by a regulator, I would update

<sup>106</sup> A view confirmed by all my informants in the interviews.

<sup>107</sup> Although not specifically tailored to the issue of new technologies, this view is expressed, among others, in (Harper 2013) (see also, (Westcott 2018)). According to this author: "In these days of much movement of partners from firm to firm, it can be argued that many partners place little long-term value in [investment in the future]". p. 55.

<sup>108</sup> Arguably this problem could be minimized by adding retirement benefits for partners or by making partners permanent equity members. This means that they will maintain an economic interest in the firm also after retirement with the result that may be incentivized to approve long term investments. See, for instance, (Molot 2014). See also, (Westcott 2018).

<sup>109</sup> Interview with Senior Partner of Danish large law firm, 16 August 2019.

and maintain their system and train them on the developments. I also told them that they should not pay hourly rates and should not waste a lot of money on large law firms for that particular area of business. As the technology developed, I realized that I could do this more and more, not only in my area of law, but in any area of law. And to be brutally honest, the partners in my firm started to be more and more concerned about what I was doing and I found myself arguing with my own partners. [ . . . ] They believe I was threatening how they run their practice, which they run in the traditional model, by showing to clients how they could do things by themselves through technology by using fix prices and subscriptions. In their view, I was undermining the firm, as I was building a different kind of law firm in the law firm. And so, I resigned and left to build my own law firm.<sup>110</sup>

The difficulties of incorporating new technologies in the present structure of large law firms can also be found in the comments of one the Head of Innovation of an English large law firm.

Q: How were the technological innovations you introduced received in the firms?

A: There were people that were ready, the one I call "the coalition of the willing". It is not always where you expect it, but they exist. Often it is said that partners are the most resistant. Generally, the most successful partners are those that often want to change. They have already changed and adapted in their career to become what they are. Then there are those that do not understand but are not against it and, finally, there are the most difficult ones, the one that do not want to do it. When I was young, I wanted to convince those that did not want to do endorse technology to do it. It is a waste of energy. You are not going to convince them and loose time and energies. Now, I go for the coalition of the willing, and then take my case to the next group. Those resisting will eventually come on board. If not, they will be out in the long-run. [ . . . ] My best allies tend to be the successful partners in their 50s. They are ready; they get it; and they want to do it. They still got 10 years left and they understand that in order to remain competitive and relevant they need to keep on adapting and perhaps they listen to their clients."<sup>111</sup>

The above testimonies reveal how the organizational form of the partnership makes it extremely difficult to build a consensus in favor of reducing current draws in the hope of larger future earnings. The problem is that even if large law firms identify a long-term value in massively investing in digital technologies, their current ownership structure deprives them of the means to navigate that path as partners are most likely to choose short-term benchmarks. Accordingly, I propose an alternative organizational structure for large law firms to cope with the digitalization of the legal field in a more effective manner. Firstly, I argue that the organizational structure of the partnership should give way to a more corporate form, which I identify in the shareholder limited liability company.<sup>112</sup> Secondly, the hierarchical management structure should turn into a flat organization with a decentralized management system.

As for the shareholder limited liability corporate model, this organizational form has the great value of differentiating ownership from the right to manage the firm directly. Unlike the present partners of large law firms, corporate shareholders must elect a board of directors, which then hires corporate officers who manage the firm in its best interest. In turn, this means that the firm would be able to take effective and fast decisions, without having to rely on the collegial vote of a high number of

<sup>110</sup> Interview with CEO of English large law firm, 1 May 2020.

<sup>111</sup> Interview with Head of Innovation of large law firm, 3 December 2019.

<sup>112</sup> It is worth noticing that, especially in the United States, there are other non-corporate forms of law firms, namely the Limited Liabiliy Company (LLC) and Limited Liability Partnership (LLP). Yet, these different forms are mainly oriented to set up different forms of liability for the lawyers working in the firm and are less concerned with the internal organizational structure of the firm itself.

partners with different interests and roles in the firm.<sup>113</sup> Importantly, this would also allow detaching the long-term investments of the firm from partners' decisions, thus, in principles at least, making room for the entrance of new technologies in law firms. For the time being, this part of my proposal would be, however, limited to those countries (like the United Kingdom) where this organizational structure is allowed. In many other countries, a corporate structure for law firms is formally not allowed. In these instances, my proposal would be then to internally organize the partnership following a more business oriented (and slim) model, by, for instance, creating sub-divisions of partners with full decision powers and by delegating increasing powers to managers.

As to the flat and decentralized management system, this organizational form will allow the people employed in the firm to work more freely according to their skills and preferences as they will not be entrenched in a patriarchal and hierarchical organization with a neat division of roles and competences between partners and associates and among the partners themselves. Moreover, for how the structure of the partnership is structured today, although with various degrees and exceptions from firm to firm, a good partner must be able to perform a number of often disparate roles, such as getting and/or winning work, training juniors, taking leadership role in the team, relating to clients, and so on.<sup>114</sup> This is because, in the present system, lawyers are evaluated according to a more or less universal scorecard, which wants them to perform a number of rather different roles as dictated by the history of the profession and its moral, ethical, and professional underpinnings.<sup>115</sup> As the technology assisting lawyers improves, however, this basic and generalist way of assessing and guiding the performance of lawyers is rapidly losing its logic and purpose, and large law firms would benefit from adopting a more decentralized form of management with self-organizing teams constructed around roles and projects. This flatter structure would allow those working in the firm (young and senior) to dedicate themselves to the tasks they actually like to perform and be evaluated accordingly, resulting in increased efficiency and, probably, improved job satisfaction within the firms. Moreover, this flat structure would facilitate the usage and deployment of new technical tools to facilitate effectiveness and creative solutions from this self-organized teams of lawyers working together with the duration of a project (or longer).

Finally, a non-negligible implication of adopting these new organizational forms is that law firms will be able to re-organize their billing practices in a way that would make legal work more effective (and to a certain extent more healthy) and client centric. In other words, moving away from the traditional form of the partnership will inevitably create incentives to abandon the highly criticized and ineffective billable hour and embrace fix pricing and subscriptions, resulting in cheaper, more client oriented, and more tech-savvy legal services.
