The Tug Of War Between Shareholder Profits And Procurement In Law Firms
In opinion / By Charles Christian / 03 May 2019
I spotted a Dilbert cartoon recently where the Pointy-Headed Boss announces “I approve your technology proposal” – to which Dilbert replies “But I made that proposal six months ago. Now everything has changed, and it no longer makes sense.” Which, in turn, leaves the Boss to reply “Well, I guess I was smart to wait!”
Does this sound familiar for those of you toiling in the legal technology sector, trying to get IT procurement plans approved by law firm managements?
Now obviously there is a valid point here in that technology does advance at a rapid pace, so that this year’s potential risky, untried platform becomes next year’s go-to industry standard. And of course we are also all familiar with the phenomenon, either at work or at home, that the day you buy a new phone, laptop, TV-set, or whatever, is the day before the manufacturer announces a new model that is both cheaper and has a more advanced specification!
To revert to another favourite cartoon reference, this time Snoopy in Peanuts… “Sigh!”
But there is an important difference when it comes to the procurement of legal technology, compared with the purchase of tech in almost every other business sector – and one which makes prevarication an inevitable part of any IT strategy. The issue is that the people who own the business and share the profits, are also the people who run the business.
This is in sharp contrast to everywhere else where the shareholders delegate the management of the business to a team of directors. Yes, these directors will be held responsible if something goes wrong but, for example, in the normal course of events the IT director does not have to argue the merits of cloud-based computing versus an inhouse platform at a room full of shareholders during an AGM.
However when it comes to law firms, the vast majority (with the exception of a few that have gone the corporate/PLC route) and certainly almost all mid-sized and smaller firms, have a structure in which the “shareholders” – in effect the equity partners and any other non-salaried partners – also run the business and make all the key decisions.
In the wider world, an IT director can submit a proposal to their board and, assuming there is a budget and a well-made case, the board will approve it. In the legal world, an IT director can also submit their proposal to the firm’s practice management board, but no matter how well the firm may be performing and how well argued the IT director’s case may be, there is no guarantee it will be approved – even if rejecting the project may defy business logic and common sense!
The big sticking point is what a law firm spends on technology next year comes out of the profits the partners would be sharing out and taking home in their pockets this year. If this were not bad enough, there is also a further complication, namely the inherent short-termism of law firm partners. Most partners enjoy a relatively short time at the top and once they leave the firm, their share of the profits will dry up.
All of which means they have a vested financial interest in maximizing their earnings now, rather than agreeing to plough the profits back into the firm to invest in technologies that will no doubt benefit other members of staff and enrich the generation of partners who follow them. What happens in the future is not their concern, as they’ll be gone and it will be somebody else’s problem to sort out. Rightly or wrongly all they are interested in what it means to their earnings now.
And this is why supposedly ambitious law firms are limping along on technology systems that are seriously out-of-date, creaking and sometimes at the end-of-life. It is always an eye-opener to learn what old fashioned versions of Microsoft Windows and Microsoft Office many firms are still using, and during my own reporting career, I have observed the trend for firms retaining legacy (a polite way of saying old) document and practice management systems for many years longer than was the case - even as recently as the 1990s.
Retaining systems for 15 years plus is no longer unusual. Then there was the law firm that prevaricated for so long over the purchase of a DEC minicomputer system – an amazing 20 years of delays – that by the time they said “yes” neither the computer hardware nor the manufacturer were still in business.
OK, that last example was an exception but it does bring us back to where we finished the last column: where it can provide a valuable sanity check for a law firm at loggerheads over an IT strategy to bring in an independent third-party consultancy, such as Nasstar, to vet proposals and advise on whether that new IT investment is really necessary.