Two recent articles on the international business of law published in the Financial Times took my eye recently, as they seemed at first glance mutually contradictory but on further reflection, that very inherent contradiction belies a broader truth. On the one hand, London-based correspondent Kate Beioley and New York-based correspondent Joe Miller report* that on both sides of the Atlantic (the two largest global legal markets), law firm fees are being squeezed as their clients retrench in this new, uncertain world. According to Thomson Reuters Institute, cited in the article, average hours worked by lawyers this year fell to the lowest level since it began tracking the data in 2007.
On the other hand, John Gapper, editor of the Financial Times and sometime correspondent, reports that the competition is heating up between major US law firms in both London and New York for the most senior of private equity lawyers#. He uses the recent London raid by New York-headquartered Paul Weiss on its larger rival Chigago-based Kirkland & Ellis by way of example.
How to unravel this puzzle? Gapper’s article does not mention particular law firm partnerships, branding or the utilisation of superior technology as reasons for this phenomenon (although it is a given that senior partners do move to credible alternative law firms). Evidently, Gapper’s ‘private equity’ lawyers are big game not because of where they work – ie which particular law firm platform they stand on. So, what is it that the likes of mega funds such as CVC (cited in the article) are thinking that they are buying when they hire these rainmakers? It is ‘what they know’ and also ‘who they know’. The poem by William Blake (1757 – 1827) comes to mind:
“What is the price of Experience? Do men buy it for a song? Or Wisdom for a dance in the street? No, it is bought with the price of all that a man hath, his house, his wife, his children. Wisdom is sold in the desolate market where none come to buy and in the withered field where the farmer ploughs for bread in vain.”
This is markedly different from the ‘brave new world’ as described by technology-obsessed law firm commentators such as the UK-based Richard Susskind or US-based Mark Cohen, where in their view the practice of law is inevitably transformed by ever-advancing technology. I will explore this topic in more detail in my follow-up article, but I will cite one example to illustrate the point. Mark Cohen wrote for Forbes in 2018 on law’s emerging global community as “transparent, collaborative, diverse, cross-border, problem-solving, tech and process-centric, interdisciplinary, merit-centric, flat, pedigree-agnostic, and innovative.” Curiously, none of the above are mentioned by Gapper as prerequisite qualities that motivated the recent private equity team raids.
To try to shed some light on this, I am going to draw on a profound thinker outside of the legal industry who has nonetheless contemplated the Hegelian contradictions inherent in this period of digital change. In Daniel Kahneman’s classic book, ‘Thinking, Fast and Slow’##, the Nobel Prize winning economist explores the way that our mind tackles problems, and the way in which it can be so very easily deluded. Citing the seemingly miraculous example of a veteran chess player being able to predict the outcome of a complex game at a single glance, Kahneman defines ‘fast thinking’ as “System 1”. The chess player is correct about the likely series of chess moves in the same way that a veteran private equity lawyer is correct when predicting the likely scenarios surrounding certain courses of action for a fund as both their insights are based on over thirty years of experience. I can bet my bottom dollar that many of the senior lawyers reading this can, with unerring accuracy, predict the likely series of problems I am going to have in two years’ time with an international joint venture with a local company, say. Indeed, senior lawyers have more than 30,000 billable hours of dedicated practice to draw upon. What clients are looking for from them is deliberate and logical thinking — wisdom, if you will. This is the gold standard — the advice that can be in a simple word, “Yes” or “No,” but built on 30 years of experience. Senior practitioners would be well-served if they placed a high dollar value on such well-founded advice and therefore moved away from the dreaded billable hour. Gapper’s article indicates to me that clients will pay almost any price for wise counsel. But what is ‘wise counsel’? Wisdom is a deep understanding and realisation of people, things, events, or situations, resulting in the ability to apply perceptions, judgments, and actions in keeping with this understanding. According to Confucius, China’s most famous teacher, philosopher, and political theorist (551 – 479 BC), wisdom can be learnt using three methods: reflection (the noblest); imitation (the easiest) and experience (the most bitter). Given that it is wisdom that clients are prepared to pay top dollar for, it behoves lawyers and those like me who work with them is to spend a little time on their most valuable asset and to ‘think about Thinking’.
Back to Kahneman, when attempting to solve a problem, “the machinery of intuitive thought does the best it can. If the individual has relevant expertise she will recognise the situation, and the intuitive solution that comes to her mind is likely to be correct. However, the spontaneous search for an intuitive solution sometimes fails – neither an expert solution nor a heuristic answer comes to mind.” If our intuition does not serve us, Kahneman has identified that we switch to “slow thinking”, or “System 2” of his analysis. “In such cases we often find ourselves switching to a slower, more deliberate, and effortful form of thinking.” Or not. Therein lies the danger. And Kahneman’s analysis is essential to understand the answer to the late Queen Elizabeth II’s question regarding the Global Financial Crisis of 2008: “Why did nobody see it coming?” To quote Kahneman “the difficulties of statistical thinking contribute to a puzzling limitation of our mind: our excessive confidence in what we believe we know and our apparent inability to acknowledge the full extent of our ignorance and the uncertainty of the world we live in. We are prone to overestimate how much we understand about the world and to underestimate the role of chance in events. Overconfidence is fed by the illusory certainty of hindsight.”
But what happens when we muddle System 2 thinking with System 1 thinking? The life work of Kahneman and his partner, the late Amos Tversky, looked closely at the remarkable features of the human mind and exposed the faults and biases of ‘fast thinking’. And the faults and biases of fast thinking are evident in the practice of law. The cautionary tale of the demise of Dewey LeBouef in 2012 comes to mind when reading the above as it helps to explain how a group of clever and educated lawyers could be so wrong- headed in their approach to business. The Dewey LeBeouf debacle was not helped by the fragmented nature of international legal business, but if one were to apply basic tenets of Company Evaluation to the average law firm, I challenge you to find more than two dominant criteria that can be ticked in the list below: 1) High forward visibility of revenue; 2) Defendable and attractive margins; 3) Strong franchise with high barriers to entry; 4) Proprietary technology or brands; and 5) Sizeable market share.
Kahneman sums up the problem thus: “Expertise is not a single skill: it is a collection of skills, and the same professional may be highly expert in some tasks in her domain while remaining a novice in others.” Put in perhaps a less charitable way, partners in law firms should be encouraged to reflect more deeply and know what they are good at (and charge accordingly): know what they are not good at — and get tools and people to supplement them in those areas. And have the confidence to charge the actual value of the initial, Series 1 wise advice that they are giving to their clients.
Kahneman concludes that all of us experience a cognitive bias. We all have a tendency to replace complex questions with easy answers. Thus, we muddle System 2 thinking with System 1 thinking, believing that we are applying deliberate and logical thought processes to a problem when, in fact, we are applying fast, impulsive, and emotional bias to the problem at hand. This contradiction is articulated in a different way by another management consultancy guru, the late Peter Drucker when he said: “We know what we are good at. We are usually wrong.”
Photograph of Greenwich village chess players by Patrick M Dransfield
*‘Law firms squeezed as clients retrench’, Financial Times, March 23, 2023
# ‘Private equity lawyers are taught to eat what they kill’, Financial Times, 18 August 2023
## Thinking, Fast and Slow, by Daniel Kahneman, Penguin Books 2011
Patrick M Dransfield is a published author, photographer and senior executive in the area of law firm management. He is currently based in Abu Dhabi and works as Client Relations Director of the Emirati law firm Alsuwaidi & Company. He is also the co-founder of the Managing Partners’ Club (MPC): https://wikitia.com/wiki/Patrick_Dransfield
Work experience includes being the Marketing Director for Asia for Shearman & Sterling and White & Case; Managing Director of Asia Law & Practice, Asia Publisher of IFLR, and board member of Euromoney (Jersey) Limited, and a director of Pacific Business Press. His career began with Haymarket Publishing. Patrick is included in Asia Law Portal’s 30 people to watch in the business of law in Asia in 2019. Speaking engagements relating to the business of law include International Bar Association (IBA), American Bar Association (ABA); In-House Community events organized by Pacific Business Press across Asia, Middle East and UK, the Shanghai Bar Association, ICON, and PSMG.
Patrick majored in English and History of Art at Leeds University and holds a Masters in Chinese History from the School of Oriental & African Studies.