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How law firms can innovate by providing third-party services to other law firms

The Economist wrote in 2011 about the end of the legal industry’s lofty heights, saying of one large but ill-fated American firm:

Howrey’s boss, Robert Ruyak, blamed two new trends for his firm’s demise. Howrey had begun acceding to clients’ demands for flat, deferred or contingent fees, causing income to become clumpy and unpredictable. And the rise of specialised e-discovery vendors hollowed out another source of revenue.

Legal services continue to unbundle as traditionally firm-based work like document review is outsourced and electronic discovery becomes more complex. Chicago-based law firm Winston and Strawn is bucking both trends, performing e-discovery for not only itself but other firms and forgoing staffing agencies to directly hire and provide benefits to its document review attorneys.

The firm’s e-discovery division brings in little revenue compared to the firm’s other practice areas. But it has seen three years of growth amid increasing demand for a la carte e-discovery services from other law firms and non-clients. This is a classic example of a business disrupting itself before outsiders irreparably damage it. Ben Thompson wrote an exhaustive case study of Apple’s own self-disruption that perfectly illustrates the strategy.

Many firms are still trying to cope with the boom in third-party legal services providers and complaints about the cost of good legal representation. Formerly bullet-proof business models no longer guarantee the luxurious profits to which so many law firms were once accustomed. And law firm leadership, like publishing and music executives before them, must find innovative ways to provide new value to clients and industry peers.

That’s why law firms like Winston and Strawn are doing more ancillary legal work in-house. I wonder whether more firms will pitch those services to their competitors. It sounds counterintuitive to provide valuable services to competitors, but I think there’s a case to be made for it as a way to revitalize the legal industry.

Many law firms could use guidance on business process improvement, e-discovery, technology, management consulting and more. No one is more qualified to provide those service to law firms than other law firms. Two factors should minimize the fear of deliberate sabotage by a firm you have hired in a non-legal consulting role. The first is a reputational consideration and the second is an ethical one.

Law firms providing their own third-party services to clients and non-clients, including other law firms, have the opportunity every business has when it is among the first to market with an innovative high-value product or service. That opportunity is the chance to become the gold standard, to set the bar high and be the first name that comes up when someone seeks out that product or service. It makes good business sense to treat that first-mover reputational advantage as you would any valuable asset, with great care and cultivation.

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p>Law firms, via the attorneys who helm and staff them, are subject to myriad ethical requirements. The same processes currently in place at most large law firms to manage conflicts of interest, particularly with regard to walling off potentially conflicted attorneys from a given client or matter, could be easily applied to the firms consulting clients. In fact, the team within a firm which provides third-party consulting services to other firms could be completely walled off from the firms legal work, insulating the consulting services from concerns about endangering relationships with and the interests of current, former and prospective clients.