1. New Challenges to the Legal Profession SCALL Institute, Riverside, California February 27, 2015 Michael Roster, USC Gould School of Law mroster@stanfordalumni.orgmroster@stanfordalumni.org | (626) 449-9797 © 2015 M Roster All Rights Reserved 1/14/15a1

2. Three perspectives Law firm partner Managing partner of Morrison & Foerster’s Los Angeles office; co-chair of Financial Services Practice Group worldwide; member of Policy Committee; chair of Alternative Fee Committee General counsel Stanford University and Stanford Medical Center; Golden West Financial Corporation Client Chair of Association of Corporate Counsel, Stanford Alumni Association and two start-ups; vice chair of Silicon Valley Bank; director of MDRC, Federal Home Loan Bank of SF, California Bankers Association; EVP over HR, accounting and tax Also teaching upper division contracts course at USC law school, with goal that students be at a 2d- or 3d-year attorney level or higher by end of course © 2015 M Roster All Rights Reserved 1/14/15a2

3. Association of Corporate Counsel 35,000 in-house lawyers from over 10,000 companies (and 85 countries) Value Challenge launched in September 2008 Must be dialogue and change on both sides © 2015 M Roster All Rights Reserved 1/14/15a3

4. The problem In the past ten years, costs to U.S. companies went up 20%... except legal costs, which went up 75%. Legal expenditures constituted.4% of GDP in 1978... and rose to 1.8% of GDP by 2003. © 2015 M Roster All Rights Reserved 1/14/15a4

5. The three ACC Value Challenge targets http://www.acc.com/valuechallenge http://www.acc.com/valuechallenge 1.Reduce client legal costs by 25% 2.Provide high predictability 3.Improve outcomes While firms maintain and even enhance profitability. © 2015 M Roster All Rights Reserved 5 1/14/15a

6. In-house counsel say 75% - Requested discounts 71% - Firms aren’t responding to client business needs 68% - Shifted to regional and boutique firms 61% - Dissatisfied with outside counsel rates (Fortune 1000 GC’s) 49% - Shifted law firm work to lower priced firms 47% - Moved more work in-house 41% - Using alternative fee arrangements 36% - Reduced total amount of work sent to outside counsel Sources: Consero Group 2013 Spring GC Survey; 2012 Altman Weil CLO survey and Corporate Counsel reports; December 24, 2012 National Law Journal; 2011 ACC CLO survey; other © 2015 M Roster All Rights Reserved 1/14/15a6

7. In-house counsel say – 2 Only 31.4% recommend primary law firm (down from 35.9% in 2012, 42.3% in 2011) Clients give the following reasons (actual quotes): 1.Secondary law firms now provide substantially better client service than my primary law firm. 2.Primary firms do exactly what is asked—nothing more. 3.Primary law firms are married to their own ways of doing things and won’t change. 4.My law firm used to be much more flexible…. 5.I am trying to change my approach to managing the legal department; my primary law firm does not seem as excited as I am in getting the changes done. Source: BTI http://www.btibuzz.com/buzz/2013/6/25/after-5-year-upward-march-client-satisfaction- plummets.htmlhttp://www.btibuzz.com/buzz/2013/6/25/after-5-year-upward-march-client-satisfaction- plummets.html © 2015 M Roster All Rights Reserved 1/14/15a7

8. In-house counsel say – 3 Increasing numbers of GC’s are saying: 15% of legal spend is totally non-price sensitive Remaining 85% turns heavily/exclusively on price Seldom based on mega firms (unless a truly multi- national matter) Third-party vendors are providing data: Hourly rates by region, matter, etc. Costs-per-matter by type and geography Efficiency ratings for firms & individual attorneys © 2015 M Roster All Rights Reserved 1/14/15a8

9. Law firms under increasing pressures Clients are unhappy Realization rates are falling (92%, 82%, upper 70%) Questionable numbers Transition away from hours Law firm failures Mergers as disguised liquidations Spin offs from mega-firms New competitors © 2015 M Roster All Rights Reserved 1/14/15a9

10. Law students under increasing pressures Increasing debt Reduced hiring by law firms and others Over supply of lawyers © 2015 M Roster All Rights Reserved 1/14/15a10

11. Law schools under increasing pressures Decline in applications Decline in quality of applicants Economic squeeze Transfers and LLMs © 2015 M Roster All Rights Reserved 1/14/15a11

12. Emergence of alternative providers New entities (Axiom, Legal Zoom, former Clearspire) Multi-disciplinary practices (Empire, accounting firms) Alternative business structures (UK, Australia – private investors, multiple disciplines, multiple services) Unbundling of services (e-discovery, etc.) Metrics (Ty-Metrics, Sky Analytics, etc.) Knowledge management (PLC, Lexis Nexis Practice Advisor, Google; your future) © 2015 M Roster All Rights Reserved 1/14/15a12

13. Networking Concerns from GCs and law firm leaders – Internal (employee rights, use of time, litigation, e-discovery) – External (representing the company/firm, inadvertent disclosure, government use, hacking) Ongoing benefits – Alumni connections – Continuing education Opportunities – Solo and small firm practitioners – Lawyer and law firm consortiums – Client networks – Visibility © 2015 M Roster All Rights Reserved 1/14/15a13

14. Others have faced similar challenges Industries and professions – Automobile – Airline – Medical – Media – Others you know and represent Common hurdles – Existing methodologies – Legacy support systems – Income expectations – Culture Curious phenomenon: Those most successful under the old business model don’t just risk losing market share... they often fail (Oldsmobile, Pontiac, Pan Am, Eastern, TWA, Borders, Alta Vista, Kodak, BlackBerry, Bingham, Brobeck, Coudert Brothers, Dewey, Finley Kumble, Heller, Howrey, Thelen, Wolf Block, others). © 2015 M Roster All Rights Reserved 14 1/14/15a

15. Change comes at a tipping point Law firms, clients and law schools are unlikely to change until they need to Equilibrium v. moment of truth Once the moment of truth arrives, however, change is rapid and far-reaching 1/14/15a15 © 2015 M Roster All Rights Reserved

16. Opportunities © 2015 M Roster All Rights Reserved 1/14/15a16 Back to basics Turnkey solutions Knowledge management Interconnectivity

17. Questions and comments © 2015 M Roster All Rights Reserved 1/14/15a17