Amidst the accelerating and intensifying maelstrom of complexity facing organizations in every sector, leaders frequently face “Brody Moments:” an unambiguous realization that current-course-and-speed will lead to failure and is no longer a viable option. It’s an allusion to Martin Brody, Chief of Police in Jaws who, upon getting his first up-close look at the shark that he’s hunting, slowly backs into the cabin, saying “you’re going to need a bigger boat.”
As an organizational leader, you’ve probably experienced a few Brody Moments over the course of your career, and you’ve probably got a few more coming. In a series of interviews, we will talk to experts from a variety of fields to hear about how they are confronting these moments. In Part 2, we explore Brody Moments in Law with Friedrich Blase and Hersh Perlis. Blase is an entrepreneur, business builder, mentor and legal industry expert with more than 20 years experience consulting to and working for law firms, legal departments and alternative legal service providers. Perlis is co-founder and Director of the Legal Innovation Zone at Ryerson University. He has worked with law firms, corporations and governments, nationally and internationally, to help better prepare them to take advantage of technology and other innovations.
Friedrich Blase (left) and Hersh Perlis
David and David: What are the Brody Moments that leaders in the legal industry are experiencing today?
Hersh: Many people believe a recession will be the Brody Moment for big law, but last time there was an economic downturn that wasn’t the result, so I am not one that thinks that will be the trigger this time around. At some point, technology may provide the Brody Moment if it hasn’t already. For the time being, big law firms exist in a monopoly/highly regulated market, so tech hasn’t forced them to change in ways we’ve seen in any other sector.
That said, in 2017, JP Morgan implemented Contract Intelligence (COIN) to automate document reviews, and took out 360,000 hours of mundane tasks for lawyers and loan officers, saving millions of dollars. Once that happened, conversations about automation started being taken more seriously and some companies started raising funds for technology. I’d call that a Brody Moment - the big banks figuring out how to reduce costs using technology instead of armies of lawyers.
David and David: What Brody Moments lie ahead for leaders in law firms?
Friedrich: If leadership is forward-thinking, they are considering whether or not they’re equipped to cope with the next recession. The big firms are not generally cost efficient; they’re just not run that way. There is a small cadre of firms that are professionally managed and producing the most attractive returns. If you’re not one of those firms, you will lose people to them the next time there’s a cost-crunch. Whether leaders proactively see this or only have their Brody Moment when there’s a crisis, it’s coming.
Another Brody Moment will come when regulations related to ownership of law firms change in the US and Canada. In Australia and the UK, regulatory reform has taken a pro-competition stance by allowing non-legal ownership and, as a result, the “Big 4” accounting firms have ramped up their legal practices and are becoming major players. This also opens up new ways for law firms to raise money, manage differently, and build a significant war chest to fight for market share. More likely than not, the same regulatory reform will happen in North America some time in the next five to ten years, and many mid-market firms are starting to consider how that will affect them and how they’ll need to adapt as a result (this recent article explains the issue well).
David and David: What are the factors that will produce those Brody Moments? What should leaders look out for?
Friedrich: The difficulty faced by any leader who wants to get after this early and proactively is that running a law firm is like running an alliance of independent practitioners. The partners are the owners in the law firm and you have to convince them that things need to change in the absence of a real fire. A handful of dissatisfied clients aren’t enough to drive substantive change. What will convince them is a recession, creating less demand and excess capacity and/or the regulatory reform I mentioned, which will create new competitive threats.
Hersh: Another key factor is that the technology is now reliable and provable. People can no longer deny that artificial intelligence that reviews contracts, automates discovery and other repeatable tasks isn’t capable of doing things that used to require armies of associates. Brody Moments will result as the adoption of technology eliminates mundane tasks, erodes billable client hours, and invites non-traditional competitors into the market. For the firms who find ways to take advantage of this, it will also create many net new market opportunities and enable them to scale their services to clients and customers they currently consider unattainable. I’d also point out that technology represents opportunity for lawyers, not something they should be afraid of. Every study shows using tech on its own or lawyers on their own pale in comparison to the power of combining the two. The robots aren’t coming to take the lawyers’ jobs, but someone will if they don’t figure out how to properly scale their services.
David and David: What characterizes the new trajectory leaders in law firms need to move their organizations to? The “bigger boat” so to speak?
Friedrich: Ultimately, the required changes can be incremental, not fundamental. For example, average hourly rates can’t continue to go up by an average of 3-6% year-over-year forever. How do we apply technology to keep costs down? How do we change fee structures? How do we become more competitive?
Hersh: To adopt automation and to dominate, law firms will need to change their mix of people, get them working together in new ways, and establish new business and partnership structures. The market they have is quite large, but the market they are ignoring is enormous. To get there, they need to add capabilities around scaling and managing their business in an entirely new way.
David and David: What will get in the way of leaders driving these changes?
Hersh: Internal business structures and existing regulations prevent people from acting on some of the opportunities they may see. For example, there’s little variety of function, background, skills (and so on) in today’s firms because the structure basically necessitates building your company with only lawyers. A ten-person law firm, thus, likely consists of ten lawyers, four articling students, and three administrative people. That lack of variety may impede innovation, re-thinking business structures, and effecting change.
A smaller law firm with a more business-oriented founder would have a better chance of taking advantage of new opportunities like AI, but the regulations prevent them from scaling themselves because the only place they can get investment is from lawyers.
David and David: Do you have any other advice you can offer? Parting words?
Friedrich: Because there are no avalanches, I struggle to see how - outside of another financial crisis - law firms will aggressively pursue change. There are town criers who run around from conference to conference and predict the end of the world, but it hasn’t happened and I don’t see it as likely to happen. Could you leverage technology to build a new law firm or change an existing one so that it delivers twice the service for half the price? Yes. But until there’s an existential threat, who’s going to choose to do that?
