In theory all partnerships are based on trust. Partners jointly own the firm and all contribute to its prosperity and success. That’s at least the theory. In reality trust is not at the basis of the partnership and a system of checks and balances is needed to make sure each partner performs and contributes in a more or less equal amount. Law firms currently focus on measuring inputs like revenue, billable hours and origination. Leadership focuses on individual lawyers as the key performance indicators. Law firms are insufficiently aware how strongly the metrics are detrimental to behavior. Most firms measure the revenue and the number of billable hours each partner creates. This might seem the most logical thing to do, but: ‘what you measure is what you get’. If partners are assessed on revenue and hours, then that is what they will produce before anything else. No incentives to cooperate. Once one starts measuring personal revenue, partners will start competing with each other to be ‘billing partner’ and put the file in their name. Holding partners accountable on the basis of their personal revenue is not going to encourage cross-selling. The firm will lose out on opportunities. From the client’s perspective law firms should be integrated partnerships. All partners cooperating in a collaborative harmonious way looking after the client’s interests. In reality all too often partners are trying to monopolize the client relationship in order to maximize personal revenue even if it is at the costs of the greater good of the firm. No incentives to become more efficient. Clients have started to demand that law firms enhance the efficiency of the work process. Spending as few hours as possible, but as much as necessary. This introduces a completely new way of working for a lawyer who is used to have almost complete freedom on how time is spend. Actively trying to reduce time spend on a matter or on a client would go directly against the interest of the partner. Partners and associates alike have to make the required number of hours in order to comply with the norm. We have been called to a law firm where senior associates started to leave because the partners needed to make the hours themselves. This might seem like an extreme example, but it happened. For associates typically their bonus would depend on the number of billable hours they make. Little incentive to become lean and mean with time spend. Overcoming the ‘prisoners dilemma’ The prisoner's dilemma is a well-known paradox in decision analysis in which two individuals acting in their own self-interest pursue a course of action that does not result in the ideal outcome. The typical prisoner's dilemma is set up in such a way that both parties choose to protect themselves at the expense of the other participant. As a result of following a purely logical thought process, both participants find themselves in a worse state than if they had cooperated with each other in the decision-making process. Stated simply, the prisoner's dilemma stipulates that personal interest seems more desirable, but it often leads to a worse result if two parties are both acting in self-interest. Interestingly this is precisely what we see happening in law firms: as long as personal interests prevails, the firm as a whole will lose out. A more balanced system. Focusing predominantly on revenue and hours has served law firms well over the past decades. Today’s reality demands that more balanced and sophisticated measurement systems are put in place. We know a small number of law firm partnerships who do not measure anything individual at all. These exceptions might well be the only true partnerships. However, I’m not convinced this is the best way to go. Like any other business law firms need measurable and quantifiable KPI’s for their partners and lawyers. These performance metrics should focus on what is in the best interest of the firm as a whole. What and how exactly will greatly depend on the system of profit distribution. Lock Step, Eat-What-You-Kill and anything in between. Today we are actively working with our clients to develop and implement these new and more sophisticated systems of performance tracking. Always with a clear eye on the interests of the firm as a whole. Rewarding cooperative behavior. The time has come for law firms to overcome the prisoners dilemma…

Not a day seems to go by without blockchain being mentioned in one way or another. Most of the hype is about cryptocurrencies such as Bitcoin. Even to the point that many people have started to think that blockchain and Bitcoin are one and the same. The creation of new Bitcoins, called Bitcoin mining, is done by solving increasing complicated mathematical puzzles, a process that huge computing power and consumes insane amounts of electricity to complete. The consequence is that people have started to believe that blockchain consumes a lot of energy. It does not. The blockchain technology is generating a huge amount of interest amongst the technology community in Silicon Valley and elsewhere. It is widely predicted to transform huge swathes of industry over the next five to ten years and beyond. A vast number of potential applications have been identified, some of which are already applied in real world applications. Blockchain can best be described as a digital platform or database for securely storing information and recording transactions. And while blockchain technology does have genuinely interesting and potentially powerful use cases, it has enormous drawbacks for consumer applications that get little mention in media coverage: 1. Scalability The on chain transaction processing capacity of the bitcoin network is limited by the average block creation time of 10 minutes and the block size limit. These jointly constrain the network's throughput. The transaction processing capacity maximum is estimated between 3.3 and 7 transactions per second. However, in reality the Bitcoin network is achieving maximums of 3 to 4 transactions per second. Let's compare this to Visa which uses a security protocol Verified by Visa, that guides its client banks and merchants in confirming that it is the cardholder performing a transaction. Visa processes an average of 150 million transactions each day, or around 1,667 transaction per second on average. Based on rigorous testing, Visa estimates that it is capable of processing more than 56,000 transaction messages per second. Blockchain still has a long way to go. 2. No password recovery Blockchain wallets and their passwords are tied to a file on a user’s hard disk and are absolutely critical to users trying to access the blockchain. By their very nature they have no recovery mechanism. “You lose your password, you lose everything” is an awful user experience for mainstream consumers and a nightmare for companies attempting to build their service on a blockchain. If you use a hosted service, the risk of theft or sudden loss of assets is very real, with central targets and limited traceability. For most consumers, losing a password to an online service is a mild inconvenience they’ve grown accustomed to, since typically, it’s quickly fixed by requesting an email reset, say, or talking with customer service. Not so with blockchain. 3. Smart contracts are computer code, not legal documents One of the terms that almost inevitably comes up in the context of legal issues and blockchain is ‘smart contracts’. Smart contracts are for example underlying Initial Coin Offerings (ICO) and are a set of coded operations that get executed automatically when someone sends an input to the contract. But smart contracts and are just like any other piece of code, and may sometimes contain vulnerabilities and bugs that can be exploited. A scan by researchers from National University of Singapore (NUS) of nearly one million Ethereum smart contracts has identified 34,200 vulnerable contracts that can be exploited to steal Ether, and even freeze or delete assets in contracts the attackers don't own. The potential use-cases for blockchain are vast and broad ranging, reaching across multiple sectors and industries. While there are many perceived benefits (not least reduced transaction processing times and cost for financial institutions), there are some significant barriers to adoption, including the legal challenges outlined above. Nevertheless, as the use and implementation of blockchain becomes more widespread, businesses will need to be able to respond to increased customer demand for more efficient and secure service delivery methods and blockchain may offer an attractive solutions to these issues. For the short term however blockchain is predominantly a technical issue and not so much a legal issue and it remains surprising to see how many law firms today are trying to ride this wave.

For years now India has been talking about finally opening up its legal market to foreign law firms. On 13 March the Supreme Court of India ruled that this would still not be allowed. Foreign law firms however will be allowed to give legal advice to their clients on foreign laws. The Supreme Court also ruled that Business Process Outsourcing companies working on legal services can operate in India as they don't have to operate under the ambit of the Advocates Act. And it also ruled that foreign law firms can fly in and fly out of the country to give legal advice, but they can't be allowed to set up permanent offices in the country. The Indian judiciary has been grappling with the question of whether to permit foreign lawyers to practice in India for more than two decades. The original dispute started more than 20 years ago when licences were granted to foreign firms such as White & Case and Ashurst to set up offices in India. At some point the Bombay High Court ruled that foreign law firm should not set up offices. However the question as to whether foreign lawyers practicing foreign law in India without a physical office was unresolved. In a now famous case, petitioner, AK Balaji had sought a direction to the Union of India, the RBI, the BCI and the Bar Council of Tamil Nadu to take action against 32 foreign law firms, allegedly practicing illegally in India. In 2012 the Madras High Court ruled in favor of the ‘fly-in, fly-out’ arrangement for foreign lawyers to visit clients in India in 2012 which was reaffirmed by the Supreme Court. This was appealed by the Bar Council of India. Ashurst, Bird & Bird, Clifford Chance, Herbert Smith Freehills, Linklaters, Norton Rose Fulbright, among others gave evidence at the time. Interestingly, last year in January, the ministry of commerce and industry on January 3 amended a rule allowing foreign law firms to set up offices and advise clients from Indian Special Economic Zones (SEZs). Before that, India did not permit multinational law firms to operate in the country. Indian law firms were also not allowed to operate from any of the SEZs. Last year's amendment however was made by the commerce ministry, while whether to allow a foreign law firm in India is a purview of ministry of law and justice. To be continued...

Fundamentally we are still training our future lawyers to become legal scholars. Given the fact that most if not all of that knowledge will be available to everyone via Artificial Intelligence soon, this must be completely the wrong way to go. So here comes my list of the five things law schools should teach, but don’t: 1. Drafting skills One of the core capabilities of a lawyer whether it be today or in the past is having the ability to draft an agreement, a law, general terms and conditions, or any other legal document from scratch. It is surprising that even the drafting of something as simple and elementary as a Non-Disclosure Agreement is never taught or practiced in law school. I really find this a shocking omission. And hopefully most of you would agree. As a consequence as a practicing lawyer we are dependent on and addicted to templates. We keep reusing old stuff that we adapt a bit here and there, without asking ourselves if it wouldn’t be better to start from scratch. The same is true when it comes to new laws. By adding on to existing laws we all too often create our own mess 2. Negotiation skills. What clients want from lawyers is their ability to negotiate on the client’s behalf. Most lawyers have to negotiate all the time. Lawyers have to negotiate a deal, a contract, a settlement, and so on. Legal issues rarely are about being right, they are about convincing others that your client has a valid point of view. The vast majority of disputes never come to court but are settled instead. The vast majority of contracts are a matter of give and take. The ability to negotiate and the ability to come up with a negotiating strategy is at the core of a lawyers profession. One cannot be a good and effective lawyer without being a good negotiator. The process of negotiating has been subject to academic studies for over a decade, so it is the more surprising that this is not yet part of the law school curriculum. 3. Project Management Lawyers typically are not very good in time management and project management. For a scholar working as an academic this might not be much of an issue, but if you are in private practice it is. On the most basic level every lawyer must have the ability to plan each matter in advance and keep track of multiple matters for different clients at the same time. Anyone who has ever worked within a law firm knows this is an issue. All too often associates have to work late or in the weekend, not due to the sheer volume of work, but only as a consequence of poor planning. This is as annoying as it is inefficient, but it is quite harmless (or even beneficial) when it comes to the financial results. The hours are still paid for by the client. Things get more serious as it comes to Alternative Fee Arrangements. Even the most experienced lawyers tend to hugely underestimate how long it will take to perform a certain task. Due to increasing pressure on legal fees, law firms have to become highly efficient in the way they manage a case. Law school need to teach future lawyers how to break down a case in smaller steps and how to assign people and time to each of these blocks, while keeping track as the case develops. 4. Business skills and economics Being a lawyer is very different from being an academic. As a lawyer you are running a business or you are part of a business. Lawyers need to understand the fundamentals of business economics in order to run a profitable business. They need to understand profit and loss, revenue and cost, cashflow and so on. With today’s competitive climate, pressure on legal fees and the potential need for investment in IT is more important than ever before that every lawyer in the private sector has good understanding of running a business. This is equally true for sole practitioners as it is for anyone at a big law firm. We have all experienced that most associates promoted to partner have no idea how to run a profitable practice. 5. Creativity Lawyers are still trained to apply the law and avoid all potential risks. Clients on the other hand are mainly interested in solutions: road maps, not road blocks. As the knowledge of the law becomes easier accessible to our clients, our added value will be defined by our ability to come up with new and creative solutions. Creativity is not some mystical gift, it is a state of mind that can be thought and trained. It is the way in which you approach problems and obstacles. It is important that law schools make this part of the educational process. Progress can only be made by pushing the boundaries. Young people cannot learn this early enough. So what about technology you might ask? There is no denying that technology will change part of the legal profession. Many of the boring tasks like e-discovery, legal research and document management are already done by computers. Artificial Intelligence will end the monopoly on knowledge of the law. Lawyers should embrace these developments as they will take away the boring stuff enabling us to focus on the things that really matter. There is no need for lawyers to understand this technology, like there is no need for a pilot to understand the jet engine.

In the relationship between law firms and their clients, the relationship is typically in the hand of one of the partners. In many cases this will be the partner who was involved when the relationship originated. The question is however if this is the optimal way to manage the relationship. The partner who acts as the client partner has a personal interest to keep the relationship as exclusive as possible. This way the partner gets all or most of the revenue in his or her name. Secondly, if the partner at some point should want to make a lateral move to an other law firm, it is important to have a portable book of business. The more exclusive the relationship, the more likely it is that in such event the client will follow the partner. Seen from the client perspective in most of the cases it is not ideal if the relationship is overseen by a partner who is also a practicing lawyer in a specific area. The legal specialism becomes a hinderance in discussing the broader client legal needs and opportunities. Ideally form the client perspective the relationship should be managed by someone who is equally broad as the General Counsel. This is where a Client Service Director could emerge as a new rol within law firms. The CSD would hold the over-all relationship with the client. The CSD would be responsible for the pricing arrangements and for identifying how the firm could best - proactively - help the client reach its business goals by bringing in the right legal expertise at the right point in time. The CSD will typically not be a practicing lawyer. Experience as a lawyer would be extremely helpful by does not need to be a prerequisite. It is important to clearly distinguish between the role of the Client Service Director who is responsible for client management and the role of the partner who will always remain responsible for matter management.