Perspectives on Legal Services Regulation

Volume 7 • Issue 2 • January/February 2021
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Zooming Ahead

A conversation with John Suh

David B. Wilkins, faculty director of the Center on the Legal Profession, recently sat down with John Suh, CEO of LegalZoom from 2007 to 2019, for a conversation on the relationship between regulation and innovation in the legal profession.

David B. Wilkins: Thank you, John, for speaking with us. It was clear from the outset that LegalZoom was trying to create a new kind of legal organization, but it was not so clear how it was going to be received by regulators or by the public. I wonder, as you thought about building this business, how you thought about creating something new in the legal space.

John Suh: Internet entrepreneurs spend a lot of time thinking about new solutions to old problems. LegalZoom just happened to apply that strategic mindset to the law. I should clarify that LegalZoom is focused on “small” law—helping everyday Americans and small businesses with their routine legal needs—in contrast to “big” law, the province of large law firms, corporations, and the uber wealthy. They’re two very different worlds, and I’d be remiss not to highlight the distinction.

In the early years, the regulatory landscape was like a dark, stormy cloud always hanging over us—you just hoped that we would get to shelter before it opened up.

LegalZoom’s mission is to democratize law. Many feel economically frozen out of the legal system due to attorney fees spiraling out of reach of the average American. You cannot have a healthy democracy if the legal system protects only large corporations and the wealthy. Access to the law is a fundamental right.

Our strategy was to leverage a platform of people and technology to create affordable, convenient, consistently high-quality legal solutions for the most common legal needs of small-business owners and individuals. I’m proud of what the team accomplished. We created the first legal brand that 70 percent of adult Americans recognize and helped millions of Americans protect their small businesses and families.

It’s crazy to think that after 15 years, we are still in the early innings. There’s so much work ahead. No systemic change at scale happens overnight, but I’ve realized progress is not measured in years but in decades. The legal industry has the additional anchor of being rooted in precedent. Maybe that’s why innovation seems to move at a glacial pace.

Wilkins: One of the things that contributes to this, which LegalZoom ran smack into very early on, is the regulatory system. You have had a number of long-running battles around, for instance, unauthorized practice of law (UPL). How did you think about these things as an entrepreneur coming from outside law encountering the legal profession’s regulatory system? What did you think about it, and how did you try to navigate it to build LegalZoom?

Suh: In the early years, the regulatory landscape was like a dark, stormy cloud always hanging over us—you just hoped that we would get to shelter before it opened up. In the early years, LegalZoom received dozens of challenges from state bars and class action lawyers that did not understand our business model. Luckily, LegalZoom was on the right side of history and more important, by the time these challenges ramped up in earnest, we could afford the millions of dollars required to defend ourselves. While the occasional issues still crop up, the frequency has dropped quite dramatically.

Part of the decline is many are now very familiar with our business model. It also helped that we forged amicable relationships with many state bars and attorneys general. We’re in such a different world today, but in those early years, the challenging regulatory landscape was the first, second, and third thing that investors looked at.

While legal challenges have receded for LegalZoom, I still see many legal startups fail from an avalanche of inquiries/lawsuits from various members of the status quo. I really thought LegalZoom’s success would pave the way for other innovators to follow. When you’re mission-driven—when you focus on democratizing law—you support others aligned with your mission. We hacked our way through the thorny morass of 50 state regulations on UPL and the like, but it seems that just as we emerged on the other side, the path closed behind us. The regulatory landscape is still a dark cloud hanging over new legal innovators. Now a few states, whether it’s Washington, Utah, or Arizona, have been forward-thinking. They’ve established committees and experiments and regulatory sandboxes to spur more innovation in the pursuit of greater access to law. I hope more states take action, but inaction is more the norm.

If UPL is vaguely defined as “anything a lawyer typically does,” it’s challenging to establish meaningful guardrails.

Wilkins: Do you think that one of the things that helped you get through it in a way that others haven’t has been your ability to mobilize public support? I remember from the very beginning an effective advertising campaign targeting individuals and small businesses who needed just basic things—and that resonated. Did that kind of public support temper the ability of bar associations and groups of lawyers to go after the company?

Suh: Once we became established and operated at scale, I suspect public support factored into some decision making. However, in the early days we didn’t have that benefit. In fact, unlike a lot of technology companies where that is a central tactic, we never mobilized the public for the purpose of regulatory change. We focused on industry outreach—seeking to be an active participant in conversations around regulation. We established direct relationships with many attorneys, state bars, the judiciary, and academics. Many of our senior executives would speak at legal conferences or law schools each year until we became a familiar presence. It took time, but familiarity does breed comfort.

Before LegalZoom, I didn’t really know what an attorney general did! I just knew the person was an elected official. But we decided if the AG is essentially the chief legal officer of the state focused on protecting the public, we should engage in dialogue. I remember attending our first attorneys general conference. Each year there’s a Republican one, a Democrat one, and a “let’s all get together in a bipartisan national conference.” We would go year after year to establish relationships with various AGs to understand what was important to them until we became a known quantity. We might hear questions like “Should we regulate you?” However, we were just happy to have the conversations!

The more people got to know our leadership team, the more comfortable they became. We even built a legal advisory council from a subset of thought leaders to help guide our product development.

I’m sure providing legal services to millions of Americans contributes to some calculus on the regulatory side. It’s very easy to create theoretical arguments about everything that could go sideways with any change in regulation. The specter of possibility to the risk averse becomes its own reality. The existence of an overwhelming number of happy customers is a powerful counter.

Wilkins: This question really follows from that: there are regulatory reforms floating out there, as you know, in places like Utah and Arizona. Who should be in the room during these debates?

Suh: It’s a very good question. We always advocate for the right regulation as lack of regulation puts you in an untenable, nebulous state. If UPL is vaguely defined as “anything a lawyer typically does,” it’s challenging to establish meaningful guardrails.

The majority of practicing lawyers are focused on their fellow lawyers. This is by design. As you mentioned, the legal industry is largely self-regulated. A number of folks have shared the perspective that state bars often function like a guild. A state bar may create admission standards, develop professional codes of conduct, and occasionally discipline or even expel a member. But consider the majority of revenues for state bars are typically derived from annual dues from fellow lawyers. Leadership is typically selected via an election by fellow lawyers. The public has little to zero role in that process.

Success will come when we allow the legal industry to leverage the human and financial resources every other innovator relies upon.

Because of self-regulation, meaningful change will most likely be driven by either the judiciary or the legislative branches of government. The 2007 Legal Services Act was an act of the UK parliament. Change was not driven from within but by the legislative branch.

My ideal team to create effective regulation would be a cross section of lawyers, legislators, judges, venture capitalists, and innovators inside and outside of the legal industry. Legislators bring an understanding of how regulations shape activity. Judges can be neck-deep in the trenches and are often intimately familiar with what is and is not working. Venture capitalists would be helpful in identifying how to attract funding while bringing a grounded perspective on driving innovation. Innovators can share what is and is not working, and there can be practical lessons learned from industries like health care, who have blended licensed professionals and nonlicensed professionals.

Lawyers and nonlawyers need guardrails that are specific and outcome driven. Until we have a substantive dialogue with the right people at the table, you will just have endless interesting discussions that lead to zero change.

Wilkins: What about the actual operation of the sandboxes themselves?

Suh: They are great starting points to safely incubate ideas. They absolutely have a place. But they can be easily hamstrung without constant executive support. Leadership matters a lot, and there’s a spectrum of leaders—some more traditional and some more forward-thinking. A vocal minority may be earnestly dedicated to change, but the challenge is the moment you take one or two individuals out of leadership roles as they go back into practice or whatnot, the whole thing can fall apart quite quickly. There needs to be sustained senior support.

Regulations designed to increase legal access must address two essential ingredients: (1) attracting and retaining teams with diverse talents and skills, and (2) capital. If you took a moment to name the five innovative companies that contribute most meaningfully to improving your life, it is highly likely none of them would exist without outstanding teams with diverse skills and ample funding. Innovation is driven by people and capital. Regulations must address both ingredients.

Where would LegalZoom be without our engineering team? Or our marketing team? Or our product team? If you relegate individuals with essential skills into second-class citizens bereft of meaningful financial benefit, you simply cannot compete for talent. It’s difficult enough attracting talent with a massive war chest of capital and a huge allocation of stock options. Without those ingredients, I don’t know where you start.

To put a finer point on this, I believe one of the great obstacles to legal innovation boils down to equity. A typical law firm cannot have an equity partner who is not a lawyer, nor can it raise capital from nonlawyers in return for equity. Without equity participation, the legal industry is denied two critical ingredients of innovation. This is what the Legal Services Act addressed front and center.

Success will come when we allow the legal industry to leverage the human and financial resources every other innovator relies upon. The first step would be creating a set of regulations that properly safeguard the public. Regulations should be outcomes-based and maintain professional standards of conduct.

You have to embrace continuous change until it becomes second nature. You must jettison precedent.

Wilkins: Notwithstanding all of these challenges, LegalZoom found a way to succeed. You got capital. You built a diverse team. You survived the regulatory challenges. And you have become the most recognizable legal brand in the United States and increasingly the world. As you’re looking back on this 15-year journey, what advice would you give to the companies who are trying to come in your wake?

Suh: It never boils down to one thing, but if I had to list factors that contributed to our success outside of a good dose of fate, fortune, and luck … top of mind is being mission driven, as it is critical to attracting and retaining fantastic talent.

What really comes to mind are more entrepreneurial leadership/entrepreneurial/cultural takeaways.  You have to embrace continuous change until it becomes second nature. You must jettison precedent. While you should understand why the mouse trap isn’t catching mice … when you design the next mouse trap, you can’t be trapped by incremental iterations of what exists. You have to reimagine and reengineer. Give teams permission to go after it with sufficient resources and guardrails. Critical to our success was the ability to experiment constantly at small scale. We tested a hypothesis by quickly validating key assumptions with scarce resources. With legal, by the time you launch at scale, you’ve got to be bulletproof.

The legal space is very unforgiving. I see some legal entrepreneurs thumbing their noses at regulatory authorities. I ask, “Given 50 states with 50 different sets of regulations, how can you launch nationally without first doing the gritty work?” You are going to get shut down and make it more difficult for other people to innovate. Legal entrepreneurs should first understand their local environments. Start with your own state, or go to where there is a favorable regulatory framework. Your first foray should have a very strong foundation because the challenges will come.

 


John Suh served as the CEO of LegalZoom from 2007 to 2019.

David B. Wilkins is the Lester Kissel Professor of Law at Harvard Law School, vice dean for Global Initiatives on the Legal Profession, and faculty director of the Center on the Legal Profession.

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Perspectives on Legal Services Regulation Volume 7 • Issue 2 • January/February 2021

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