Bringing legal expertise into the strategy development process is the natural result of lawyers becoming more nuanced and practical business advisors. These lawyers give high value, and value-creating, strategic advice about the direction of a business. They have transcended Richard Susskind’s metaphor of lawyers either building a fence at the top of a cliff, or delivering ambulance services at the bottom.

Lets say you are sitting in a strategy meeting at Apple, and you are considering options for the company’s next big strategic move. Sitting at the confluence of the telecoms, media, entertainment, and internet sectors, there are a lot of good ones to consider. Someone is giving a report that recommends option 1 because it promises the largest long term revenue stream.

Seems to make sense, says the strategy lawyer, but look at option 2. Option 2 has a significantly smaller revenue stream, but because of its competition law implications… or intellectual property rules, or… the specific sector regulation regime, it has a good chance of locking out competitors or locking in further options for still further new product launches in yet another sector…. In the long run option 2 looks better because it further delays commoditization and creates better opportunities for further investment….

Of course this is a fanciful and incomplete example, but it illustrates an important point. The management consulting industry—firms like McKinsey, Bain, and Accenture—are the keepers of the business strategy profession. Most of these firms developed out of the accounting profession, and over time moved up the value chain into the high-level advisory businesses that they are today.

However, in the world of modern management consulting the legal environment is merely part of the tableau upon which a business strategy is built. This approach misses important opportunities because there are many situations in which the legal environment for a business is not static but variable, and wherever this is true then legal is a variable that can be managed just like any other business variable. For example, in any case where a firm is involved in litigation which is significant relative to the size of the firm (“bet-the-company” litigation), or in absolute terms, such as Microsoft’s battles with the EU Competition Tribunal, then the legal environment should be considered as part of a business’ overall strategy—how could such a firm development its strategy without talking about the elephant in the room?

Furthermore, there are many fields of law in which the legal environment is fundamental to the business environment of a company:
• Tax
• Contracts
• Intellectual Property
• Competition (Anti-Trust in the United States)
• Securities
• Bankruptcy and restructuring
• Product Liability
• Sector-specific regulation—e.g. food, medical & drug, energy, telecoms, transportation, professional services

This means that no business strategy development process can be complete without incorporating legal strategy. However, business schools generally teach very little about the law, and for reasons that we will try to explore in later articles, legal as a function in a company is mostly left out of the strategy development process; the McKinsey Quarterly for example studies neither legal as a function nor professional services as an industry, and a search for “legal strategy” reveals almost nothing.

This is a blue ocean topic that has the potential to create significant competitive advantage. In the world of business academia, it falls into the larger class of “non—market strategies”, and some business schools do now touch on legal strategy in this larger context. However there are very few references or studies available which are focused on the relationship between legal and business strategy. The only text which takes on the topic squarely is Wharton professor Richard Shell’s 2004 Make the Rules or Your Rivals Will, which is full of cases where legal strategy made an impact on business strategy, from the foundation of the Ford Motor Company to Bill Gates’ battles with American anti-trust regulators.

The book is somewhat litigation-centric and begins by attempting to roughly recast Michael Porter’s famous Five Forces model of the competitive environment of business into a model that attempts to predict the result of major litigation. This is fine for what it is, and Shell then goes on and organizes a wide array of the relevant stories he has collected into classes of business strategy moves such as blocking new entrants or locking in customers.

A key goal of this Journal is to develop an analytical framework for this topic which will help to identify which fields are most likely to reveal opportunities for business strategy innovation, when and why.

Many of these are touched on in Richard Susskind’s work, including his 2009 The End of Lawyers. One of Susskind’s fundamental points is that much of what lawyers do is repetitive and not particularly intelligent or creative. In a business context, we often refer to something that is high volume, low skill, repetitive work as a commodity, and in the business world it is a well known pattern that most products have a life-cycle that ends in commoditization.

Surely this could not happen to one of the world’s oldest professions? Susskind makes a good case that it can and will happen to large chunks of what is currently considered to be the practice of law—in any case where lawyers’ work can reliably be reduced to a process.

In the UK for example it is possible to incorporate a new company online in less than an hour for about £100, and some weeks later you receive your corporate record books in the post, complete with the minutes of your first shareholders and directors meetings; Legalzoom.com in the United States is offering similar services there. The same kind of online business can probably be done with any legal business that is principally form-filling. Consider the implications of this for immigration law, for example.

A more sophisticated version of this model already exists in the a large number of what are referred to as legal “factories”, which at their best are websites where members of the public enter their own data which is analyzed by simple software that determines whether they have the kind of case that is profitable to the legal services provider. If they do then the data is then passed on to a team of paralegals for further processing, while the paralegals are supervised by a small number of lawyers at the top of the pyramid. Personal injury, divorce (quickie-divorce.com!), and unfair dismissal claims are all being processed this way in the UK, and in the US Legalzoom.com covers wills, divorce, and even patent filings with a similar model.

The obvious criticism of this kind of model is that it high-grades the simplest and easiest cases so that the “law firm” can make the most money for the least effort. This is anathema to those lawyers who pride themselves on doing good and creative work for clients who most need their help. However, the better view is that because these commoditized business models can provide simple services so cheaply, they provide access to legal services to that large majority of the public who could never otherwise afford to hire a lawyer.

Off-shoring legal work to India or other low-cost economies (legal process outsourcing, or “LPO”) is another class of business models. The LPO industry in India is only six years old, but it is already worth $150+ million in annual sales. There are some very large law firm and corporate clients (Microsoft, and Rio Tinto for example) who are getting good results, and in IP it is becoming a fairly well known path—prior art searches and patent invalidity analyses are regularly done in India. The economic forces pulling towards LPO are overwhelming, and LPO alone has the potential to both revolutionize and globalize the delivery of legal services around the world.

Furthermore, the tentative trend established in the UK towards allowing non-lawyer ownership of law firms has implications for more dramatic change, such as IPOs of international firms or the entry of hedge funds; these scenarios raise almost as many concerns about ethics as they do possibilities for innovation.

We will explore each of these potential business models and their implications in future articles.

Law schools do not generally teach anything about business, as opposed to business law. As a result, lawyers learn about business legal forms and contracts, but nothing about the non-legal imperatives of running a business like corporate finance, marketing, or corporate strategy. Furthermore, as members of an inherently conservative profession many lawyers resist engaging in any topic that goes beyond the four corners of their legal brief (“I only give legal advice”).

This is highly problematic for business, because every legal problem comes within a business context, and lawyers who are not willing or able to understand that context cannot give good advice; Brandeis J.’s dictum is as applicable with respect to business knowledge as it is with respect to economics, and there remains a significant knowledge gap between the practice of law and the practice of business.

In some cases lawyers address this knowledge gap by specializing not only in a particular field of law but also in a particular industry, and in this way they develop industry expertise in substitution of more general business knowledge. At the same time the scale of the knowledge gap can be masked by the natural hubris of the legal profession—lawyers who are at the pinnacle of every information and decision making-tree they are associated with can suffer from the illusion of knowing more, not less, than their clients.

A great deal has been written about alternatives to lawyers billing by the hour, or lawyers working from home instead of at a desk in a big law firm, but in my view these topics are relatively trivial. A much more significant topic is bringing business financial and strategy tools into the practice of law in order to develop a multi-disciplinary approach to the delivery of legal services.

In a litigation context for example the focus of lawyers should not be on winning their client’s case but on solving the underlying business problems—the disputes which were the reason clients came to them in the first place. One very simple example of this would be to compare the cost of litigation with the cost of buying the other side’s company—if the two numbers bear some similarity then a rare opportunity for a litigator to participate in value creation instead of value destruction may exist.

Business clients want to know how much their case will cost, how long it will take, what the risks are, and the probable result. These four basis elements—cost, risk, time, and reward, are the foundation of the financial analysis of any business proposal, and there is no reason why lawyers cannot make reasoned and reasonably reliable assessments of these elements in any given legal context—the law is no more uncertain than many projects undertaken by business, and in many cases is substantially more certain.

Once we have attached numbers, or a range of numbers, to the four elements then we can financially model them the same way we can model any other business proposal. We can start with a simple spreadsheet comparing cost to risk-discounted reward, or add time to give a net present value calculation (which will show how high the reward would have to be to justify the risk over time, all other things being equal). Nor does it stop there—we can go on to decision tree modeling to assess the value of certain choices and options, and use sensitivity analysis or tornado diagrams to identify the assumptions in the model around which most of the risk in the model revolves; this in turn allows us to go back and further assess the assumptions.

I am aware of no lawyers anywhere in the world who consistently adopt this multi-disciplinary approach in their practices. Discovering such lawyers, and developing a framework with readers to put some flesh on the bones of this theoretical multi-disciplinary approach, is a key objective of this Journal.