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Decomposing Compliance Counseling

One of many useful insights Richard Susskind has delivered on legal industry transformation is the idea of “decomposing” legal practice into discrete components of work, which allows one to think more clearly about how to identify opportunities to make the delivery of legal services more efficient. He aims this approach only at litigation and transactions, however, leaving out the third major domain of legal of legal practice–compliance counseling.

Compliance counseling is the neglected child in the legal practice family. Most law school course offerings emphasize litigation and transactions. Most law students decide soon into their second year that they want to do litigation or transactions. Most of the legal reinvention discourse is about litigation and transactions. But the reality is that there is a vast amount of legal work out there that is neither litigation nor transactions–it is compliance counseling. Believe me, I billed a lot of hours in this category as an environmental and land use lawyer, and there is no shortage of work like this in employee benefits, securities regulation, health care regulation, and the list goes on. It may not be as sexy as the courtroom or as glamorous as billion dollar deals, but it’s legal work so you can bet it’s going to be the target of optimization initiatives.

What is compliance counseling, and how would one “decompose” it to identify efficiency opportunities? The answer is not as clear as it is for litigation and transactions. Both litigation and transactions follow fairly standardized process paths. Litigation has its rules of procedure, and transactions center around the closing. Compliance counseling has nothing like that, and it comes in many forms. Yet, as my previous post on Neota + Littler reviewed, there clearly are opportunities to make compliance counseling more efficient, so it is worth devoting some thought to how to unpack what goes into it.

In an environmental law casebook on which I am a co-author, The Practice and Policy of Environmental Law, we devote a number of chapters to practice settings (a rare occurrence in law school casebooks), one of which is a chapter on compliance counseling. We break down the topic into different client perspectives:

  • Planning: Here the client is planning to undertake some action, or to choose from a number of options, and seeks guidance on compliance implications. For example: “If we do X, what permits do we need, what constraints exist on our options, etc.”
  • Assessment: Here the client is already engaged in an activity, or is considering acquiring an ongoing operation, and seeks “snapshot” guidance on its compliance status. For example: “We operate a widget plant in Iowa, and we need to know if we are complying with all applicable rules.”
  • Monitoring: Here the client seeks guidance on how to monitor compliance over the long term for a given activity. For example: “We plan to be operating this widget pant for quite a while and seek guidance on what to monitor and measure over time to ensure we detect compliance problems.”
  • Communication: Here the client has detected noncompliance and seeks guidance on reporting obligations and strategies. For example: “Our snapshot assessment detected a violation of Rule X, so what do we do now?”
  • Compliance Strategies: Here the client wants to go beyond a monitoring program to develop an operation-wide strategy for ensuring compliance, which might include regular employee training, regular snapshot assessments, reporting protocols, etc.

In each of these settings the lawyer is being asked to match knowledge about the client’s business with knowledge about the applicable regulatory context. The lawyer is selling his or her knowledge base and ability to apply it accurately to the client’s set of variables. To do this the lawyer develops a mental checklist or flowchart to ensure that all the compliance questions are asked in a way that digs into the client’s compliance context and accurately identifies compliance, noncompliance, and ambiguity. Thus, compliance counseling can be unpacked into six core functions:

  1. Maintain knowledge base of relevant regulatory compliance context
  2. Develop systematic and accurate compliance analysis flowchart
  3. Gather variables from client
  4. Apply the compliance analysis flowchart to the client’s variables
  5. Identify instances of compliance, noncompliance, and ambiguity
  6. Provide counsel on communicating noncompliance and resolving ambiguities

When you think of it this way, there are some obvious opportunities for optimizing compliance counseling. First, the regulatory compliance context is a fixed set of information at any given time, subject to change over time. The world does not need thousands of lawyers maintaining identical regulatory knowledge bases. Second, there is a fixed set of client variables that clearly either comply or do not comply. Again, the world does not need thousands of lawyers identifying what those are.

So where’s the “bespoke” lawyering in compliance counseling?  What might make one lawyer different from, and better than, another? There are two such domains:

  • One set of differentiating factors is developing a highly reliable flowchart and a user-friendly system for applying it to the client’s variables to detect compliance, noncompliance, and ambiguities with a high degree of accuracy. Basically, whoever builds the best mousetrap has the advantage.
  • The other differentiating factors are providing advice on communicating noncompliance when the reporting rules are not clear, and providing advice about how to resolve ambiguities. Being effective for one’s client in this realm often involves intimate knowledge of regulatory agencies and sound judgment.

The opportunities for optimizing compliance counseling will focus on the first set of factors–developing and applying reliable flowcharts. This is what is known as an “expert system” in artificial intelligence, and it’s essentially what outfits like Neota Logic are all about. It’s TurboTax expanded to countless other regulatory domains. Think TurboEmployment, TurboSecurities, TurboHealthcare, Turbo[fill in the blank]. To be sure, an effective legal compliance expert system will need to reliably alert the user when there is ambiguity in the compliance or reporting assessment. That’s when the client needs serious face time with a lawyer. But given today’s vastly improved data storage and management capacities and expert systems software development, there’s no reason to think compliance counseling will be immune to optimization efforts across many regulatory domains. Of course, lawyers will need to be involved in designing the flowcharts, and there’s no reason law firms can’t develop proprietary expert systems. But, as TurboTax did for tax compliance work, the volume and distribution of compliance counseling work is likely to change as more expert systems are developed, and those lawyers who design and deploy the new tools will be the winners.


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