On Friday, I participated in an exchange of tweets with @adamdavidlong, @DBRodriguez, @RoninMikeSimon and @ronfriedmann about the importance (or lack of) of outside investment in law firms. I weighed in with a note that having linked up with @ElevateServices and founded its aligned law firm, @ElevateNextLaw, we (@ElevateNic and I) were evidence that lawyers could work closely with business professionals, data scientists, tech developers and other lawyers to accomplish great things. Ron Friedmann suggested I blog about this, and so here goes.
The backdrop to this discussion is ABA Model Rule 5.4(b), which famously prevents any “nonlawyer” from maintaining an ownership interest “if any of the activities of the partnership consist of the practice of law.” This ownership restriction has been largely eliminated in Canada, the United Kingdom and Australia, among other places. The substantial cost of technology development combined with the acceleration of the role of technology in law has magnified the focus on Rule 5.4 and whether it is a good or bad thing.
Much has been written about the need for access to capital for technology investment to compete in the legal sector, and I will not recount that body of literature here. Instead, I will share the decision-making that my Valorem and ElevateNext Law partner, Nicole Auerbach, and I went through.
Nicole and I were comfortable being “different.” We had started Valorem Law Group in 2008, just before the “great reset.” Our commitment to value billing instead of hourly billing resonated with in-house counsel and our practice grew. But only to a point. Our size allowed us to take a case or two from major customers, but not to make a dent in their universe. We often were asked to take a case to show a customer’s other firms that “it could be done.”
We were still playing at the periphery for many of our customers, however, and we both wanted to make more of a dent. We analyzed what held us back. At the same time, we analyzed what was happening in the market and saw that lines were blurring and focus was shifting to systems and processes that reduced the demands a given business placed on its law department. This focus on demand reduction was an inevitable outcome: it was the logical next step in the “do more with less” challenge most law departments continued to face even after years of efforts to “cut the fat.”
The blurring of the lines issues was a bit more nuanced. As law departments sought to reduce demand created by business units, the working relationship between the law department and those business units was growing closer. The lines between “us” and “them” were blurring as more businesses were learning to operate as a single team. The challenge Valorem, and every other law firm, faced was how to assist in the seamless integration of law departments into the business. After all, if the integration was effective, there would be fewer lawsuits and less work for Valorem.
We addressed this issue in a “if money was not an issue” exercise. We knew we needed to be bigger so we could operate at a scale that could make a dent. We recognized that law in general was headed toward being more data driven, so we not only would need access to data but we would need expertise in discerning the value of various types of data. We could try to buy access to data with capital, but better yet would be to have systems that collected data to use to create value. Thus, not only data, but tech also would be key.
As we surveyed the tech landscape, it appeared to us to be highly fragmented, with lots of companies taking narrow slices of the tech “pie” and developing solutions to problems that most people did not have or would not want to have to sign on to a new system to address. In other words, most tech companies in our analysis were not customer friendly—they were tech people trying to make a new toy without thought on how people would use it.
At this point in our analysis, we circled back to the reality created by the need for money to access tech and related expertise. We recognized the need to join forces with an entity that had the attributes we noted above. But when you start thinking about “joining forces” with someone, the issues of values, principles and “why” all become central, not to mention the inevitable change from total freedom to having to operate under someone else’s rules.
This isn’t the place to describe the vetting process we went through that lead us to Elevate Services, but we aligned almost perfectly in terms of our “why” (make a dent in the legal universe), our values and our belief in where the legal world was going. Plus, while I don’t have a lot of experience in large businesses, I believe it would be hard to find a better group of people.
The choice of Elevate checked off all of our boxes. Tech. A focus on results, not hours. A belief that the focus needs to be on the customer’s business, not some other metric. A belief that we need to prevent problems from occurring, and a belief we need to use reduce the friction between “legal” and “business” and collaborate to control risk but accelerate business outcomes.
Frankly, the “how” we accomplished this in light of Model Rule 5.4 was fairly simple. Companies with aligned law firms, like Clearspire, provided a path. ElevateNext Law is a standalone law firm. Nicole and I are the two owners of the firm. The other partners are akin to income partners in traditional law firms. Nicole and I are also employees of Elevate and part of its Executive Management Team. The long-term value play for us is not our ElevateNext compensation but growing the value of our Elevate stock. We accomplish that by working seamlessly for our customers. The value for us is the size, additional skill sets, technology and global reach Elevate offers. The value for Elevate is that work is traditionally had to turn down because it did and might involve the restricted practice of law is now work it can handle in partnership with ElevateNext.
The key to this relationship is that the business, not the law firm, is at the center of the relationship. It won’t work the other way, and that is why traditional law firms, especially large law firms, will not follow this path. Entrepreneurial firms, like Atrium, will follow the same or similar path. The question tech companies and tech investors will be forced to answer is whether they can stand alone rather than create an Elevate Services-ElevateNext Law type of relationship. Both parts are essential to solving the most perplexing business problems customers confront.