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JPMorgan Beating Startups to the AI Revolution. Artificial Intelligence to Eat White Collar Jobs – Is Going Solo in the Freelance Economy the Answer?

It is not just startups shaking up the AI world.  JPMorgan discusses its artificial intelligence program. Going Solo in the Freelance Economy starts looking better.

When I left Big Firm, it was for personal reasons.  I did not leave shaking my fist at a horrible culture and history of injustice.  I did not experience that.  I started thinking about a professional life staring at a different set of walls.  I began to question my place in the Big Firm ecosystem and whether I could succeed without the safety net.  Lucky me, I could.

For many attorneys, the choice will not be theirs to make.  Technology is coming for their jobs.

Junior attorneys in bigger firms spend most of their time in some sort of document review and document processing roles.  This is necessary grunt work, and it is how junior attorneys learn, when they pay attention.

Billable rates have continued to increase, and clients push back when they can.  However, discovery in litigation and due diligence in transactional work must get done.  What happens when software can take the place of expensive junior associates?

It is about to happen.

There have been a number of articles lately about first generation artificial intelligence tools for this type of work and their early adopter law firms.

Last week, Bloomberg reported on JPMorgan’s COIN, or Contract Intelligence, program.  It reviews commercial loan agreements, something that consumed 360,000 hours of work by lawyers and loan officers each year.  That task now takes seconds, has fewer errors, does not ask for vacations or have the other baggage associated with human employees.

In addition, JPMorgan’s machine learning and big data system helps automate software coding.

In legal circles, litigation document review was seen as the low-hanging fruit for AI software.  However, any white collar position that provides a service that is based on rote activities can and will be replaced by software.  It may not be tomorrow, but it is sooner than you think.  JPMorgan is already planning to license its service to its bigger clients who are staffed to the rafters with white collar “thought employees” who are about to be replaced by code.

Many people believe their job cannot be at risk to computers because computers do not have the judgement capabilities of humans.  But:

As for COIN, the program has helped JPMorgan cut down on loan-servicing mistakes, most of which stemmed from human error in interpreting 12,000 new wholesale contracts per year, according to its designers.

The software is doing other tasks that lots of humans now perform:

For simpler tasks, the bank has created bots to perform functions like granting access to software systems and responding to IT requests, such as resetting an employee’s password, Zames said. Bots are expected to handle 1.7 million access requests this year, doing the work of 140 people.

I am not writing this as a doom-and-gloom article about lost employment.  I think this is ultimately a good thing.  No one knows about the opportunities that will arise from this shift.

It does mean that people should recognize the shift and their place in it.  Stability, comfort and complacency in large organizations has been an antiquated notion for a while.  Maybe Going Solo and finding your place in the Freelance Economy is a path forward.

Artificial intelligence drives the Freelance Economy, eats white collar jobs.
Artificial intelligence drives the Freelance Economy, eats white collar jobs.  Some large enterprise companies are beating startups to the AI revolution.

Snap Common Stock and Structuring Lessons for Startups and Those Aspiring to an IPO

Does the non-voting feature of Snap’s Class A common stock offer lessons to startups or corporate governance gurus?

No.

Even before Snap’s Form S-1 filing a few weeks ago, commentators were shocked and appalled that Snap dared to offer non-voting shares to investors willing to purchase non-voting shares.  There are people who believe deeply in “best practices” and one-size-fits-all corporate governance rules. Erin Griffith at Fortune’s Term Sheet newsletter has declared that “This isn’t a rational investment.”

Griffith then goes on to describe how Snap and companies like it need to constantly change to be ahead of trends, and describes why Snap management needs the freedom to operate:

“Aside from pent-up IPO demand, Snap’s selling point is its ability to repeatedly tap into the next trend before its competitors. Ben Thompson calls this the “Gingerbread Man strategy.” (As in “Run, run, as fast as you can, you’ll never catch me, I’m the gingerbread man!”) By the time competitors start ripping them off (ahem, Facebook…), it doesn’t matter. They’re already working on the next thing.”

By the time the IPO closes, there will be about 4.5 billion shares of Snap outstanding of various classes.  Does anyone really expect that owning even a few million voting shares would have made a dent in their ability to be heard?

The demand for this offering is not based on their ability to bend Evan Speigel’s ear and provide ideas about kids messaging.

At their last shareholder meeting, Google* had about 294 million shares of Class A with one vote per share and about 49 million shares of Class B with 10 votes per share.  Management controlled almost 60% of the vote.  How meaningful was the Class A vote?  Feel empowered when you filled out that proxy?

I remember when Twitter was applauded for the plain vanilla structure of their common stock, as it was compared to the then-recent Facebook IPO, which had voting rights similar to Google.

Since their IPOs:

  • Google went from $50.12/share on August 19, 2004 to $831.66 as of this writing
  • Facebook went from $38.23/share on May 18, 2012 to $136.16 as of this writing
  • Twitter went from $44.90/share on November 7, 2013 to $16.10 as of this writing

Even Enron, the poster boy for all that is bad in corporate behavior, had state of the art governance structures in place:

“Whatever its flaws, the committee followed all the rules laid down by federal regulators, stock exchanges, and governance experts regarding director pay, independence, disclosure, and financial expertise. Enron collapsed in large part because the rules didn’t accomplish what the experts hoped they would.”

This is not to say that “oppressive” structures lead to good results.  It is to say that structures that deemed “not rational” by commentators may have a purpose that benefits shareholders.  Maybe one-size doesn’t fit all.

Snapchat doesn't care about your opinion.

Interesting (believe it or not) Developments in Delaware Bylaw Law

Case tests company attempt to shift expenses related to stockholder violations of exclusive forum clause in corporate bylaws.

I’ve been out of the blog game for a while, so I am now catching up on older stuff that I find interesting.  Hopefully, it is not completely out of date.  But what could be more interesting than laws about corporate bylaws?

This post involves some recent developments in Delaware bylaws.  The short answer:

  • Exclusive forum clauses are okay
  • Fee shifting provisions, even for stockholder action violating the exclusive forum clauses are not okay.

So far, so good.

Case:  Solak v. Paylocity Holding Corporation, et al.

Brief Background

In response to another case, Delaware made a couple of changes to its corporations statute:

  • Section 115 was added to permit corporations to adopt bylaws requiring claims to be brought solely in Delaware if they are based upon a violation of a duty by a current or former director or officer or stockholder in such capacity, or under the jurisdiction of the Court of Chancery; and
  • Section 109(b) was amended to provide that bylaws may not impose liability on a stockholder for attorneys’ fees or expenses of the corporation or any other party in connection with Section 115 claims.

Paylocity amended its bylaws to adopt exclusive forum bylaws and to impose liability on a stockholder who brings a Section 115 claim outside of Delaware.  Stockholders were not amused by the fee-shifting provision.

The court said that the plain text of the fee-shifting bylaw violates Section 109(b) despite Paylocity’s arguments that:

  • Section 109(b) must be read with Section 115, thus permitting fee shifting for violations of an exclusive forum bylaw (Court:  No exception in either provision to permit this exception to fee-shifting prohibition);
  • common law permits fee-shifting (Court: Fee-shifting is allowed in private contracts, which are not subject to the prohibition of Section 109(b)); and
  • the bylaw says “to the fullest extent permitted by law,” so it is limited (Court:  There is no extent to which it is permitted, so it is invalid.)

 

Understanding The Startup Failure. Its not you its me, or the other way around.

Go Dish
Go Dish

I hear about people’s startup ideas all the time.  Some sound great.  Some leave me doubtful.  Some great-sounding ones fail.  Some not-so-great-sounding ones go on to great success.

Sometimes there is an idea that seems to solve a problem for a business but learns later that the cause of the problem cannot be solved by that business.

Go Dish had an interesting idea based on an identifiable problem for restaurants:  there are times when the dining room is empty and they would like customers.  Go Dish offers same day deals to drive customers to the restaurants when the restaurants need them.

“Unlike traditional restaurant deal services, Go Dish gives restaurants complete control over the discounts they make available throughout the day and week. Restaurants incur costs at all hours, whether they’re serving customers or not. We help them fill the restaurant with more customers, when they want them.” [emphasis added]

Makes sense, right.  There are lots and lots of e-commerce coupon apps out there, so businesses and consumers must want them.  Go Dish seems to fill a need.  What could go wrong?

What if you identified the problem, but misdiagnosed the cause?

Go Dish released a goodbye letter and invitation to various whatevers announcing that they are closing shop.  In the letter, they again recap why they thought they had a winner:

“We embarked on this adventure because we saw a win-win opportunity to send more business to restaurants at their quieter times while helping you guys save a few bucks on lunch here and there.”

It seemed to make sense at the time:

“We’ve sent our restaurant partners over 30,000 customers and received a tremendous amount of positive feedback from restaurants and customers alike … “

But the problem with “quieter times” was not about pricing and incentives for customers.  It turns out people stay away from restaurants during “quieter times” because they have more important things to do based on obligations to others that cannot be overcome with 50% off of tacquito appetizers.

” … but it turns out it ain’t easy for most people to eat at off-peak hours. And everything that gets in the way of sneaking out of the office for an early or late lunch proved too high of a barrier to overcome for the Go Dish model to be sustainable long-term.”

Startup failure and success are not just issues of execution, “solving problems,” and “making the world a better place.”

In Go Dish’s case, a seemingly good idea for a seemingly logical problem missed the mark because the cause of the problem was both different and deeper than expected.  As a result, their solution did not address the actual problem.  I hope all of the other similar coupon companies out there take note.

Alternative Fee and Billing Arrangements – Wachtell Edition

This is why they’re Wachtell, and you’re not.

NYTimes DealBook posted the engagement letter from famed corporate law firm Wachtell, Lipton, Rosen & Katz to CVR Energy, Inc. They were engaged to help CVR defend against a takeover from Carl Icahn. They lost.

What is most interesting about the letter is the fee structure. Most attorneys bill per hour. Some litigators bill on a contingency basis and take a percentage of the judgement, if any.

Wachtell takes an initial up front fee (not a retainer). For CVR, it was $200,000. They also estimate, but do not charge (they say), fees that are typically 1% or more on smaller matters ($250 million and less) and .10 of 1% or less on matters over $25 billion. They may also get expense reimbursements.

Per the dreams of other lawyers, they do not provide long-form descriptions of services or detail hours.

When I went solo, part of the reason was to reduce my hourly rate. In addition, I was also offered the opportunity to take equity in some cases, and in some cases I would accept. Wachtell shows that you can creatively structure fees apart from the per hour norm.

In their case, the percentage structure also deals with one problem corporate lawyers have always faced: Investment Banker Envy.

LSAT Scores Declining For New Students And The Choice To Go To Law School

BusinessWeek reports that low test scores are not the same barrier to law school then they were previously.

The LSATs are the SATs of the law school world, and they tend to figure highly into the admissions criteria for highly ranked law schools.  Just ask the US News and World Report annual rankings.  And the scores for new law school students are going down.

“…since 2010, 95 percent of the 196 U.S. law schools at least partially accredited by the American Bar Association for which the NCBE had data lowered their standards for students near the bottom of the pack.”

Is it just the lower tiered schools?  Nope.

“In fact, 20 of the 22 U.S. News top-20 schools—there was a three-way tie for 20th place—were enrolling students with lower test scores. Across all schools, LSAT scores for the 25th percentile dropped an average of three points.”

It isn’t too surprising considering that law school application rates have been declining.  As job prospects face across-the-board declines, people normally attracted to other things will try their hand at law school.  It does seem to be the default choice for people who don’t know what else to do.

BusinessWeek claims this isn’t good, but only in the context of correlation to the bar exam.

“LSAT scores matter because they tend to correlate closely with scores on one section of the bar exam, so when schools admit lower-scoring students on the former test, they risk producing more graduates who have a hard time passing the bar. “

All things being equal, yes, but bar exams also tend to weighed and curved.

However, there is another reason.  If the LSAT does its job and judges aptitude for the study and practice of law (a dubious proposition, but whatever), then more people are going to law school who should be doing other things regardless of what this means on yet another test.  Plus, the bar exam can be taken multiple times, so flunking out once does not kill your budding legal career.

The fact is that the practice of law can be rewarding, but it can also be hard work, long hours and very stressful.

Few people engaged in it tend to be happy.  Furthermore, people going as a fallback career are entering into some of the worst job markets for new graduates.  There is still a glut of unemployed and underemployed lawyers and hiring does not seem to have recovered.

People entering law school should think carefully about the three-year, unpleasant and expensive choice they are about to make.

 

 

‘Barbarians at the Gate’ Available on Youtube

HBO version of classic book.

When I was a simple music student studying classical and jazz guitar in college, I had revelation in the second semester of my third year: I would soon have my BFA in Classical Guitar Performance. Then what?

I was also reading a book that changed the direction of my life. ‘Barbarians at the Gate’ is the chronical of the takeover of RJR Nabisco. After reading that, I decided I wanted to be a part of that world. I had a better understanding of what the lawyers did more than the financial advisors. As a result, I went to law school with the goal of being a corporate/securities lawyer. And the rest was history.

After I had been practicing for a few years, I read it again. It was even better with the benefit of experience.

HBO turned it into a comedy, but it still works. Check it out.

Uber, France and Protectionism

France moves to ban Uber while homegrown ridesharing service BlaBlaCar continues to grow.

Carsharing service (or unlicensed taxi service, depending on who’s talking) Uber has faced enourmous regulatory hurdles where local taxi cartels try to protect themselves from the popular service. Europe is no exception as several there is a movement in several countries to stop or regulate or extract fees from Uber. However, Europe has lagged the U.S. in startup activity and success and has taken action against many prominent U.S. tech companies, such as the recent antitrust actions against Google and previous antitrust actions against Microsoft that seem so quaint now.

With that backdrop, let’s take a look at France and Uber.

The French government recently declared that some of Uber’s services would be banned in 2015. Like many places, there are some consumer protection rationales.

““Currently, those who use UberPop are not protected in case of an accident,” Mr. Brandet told the French news channel BFM TV, on Monday. “So not only is it illegal to offer the service, but for the consumer, it’s a real danger.””

Anyone anywhere who has ever taken a licensed cab knows this is silly. The real answer? Regulation and protection of a local cartel.

“Critics contend that the service represents unfair competition for other taxi operators, and falls afoul of many licensing rules across Europe. That has led cities across Europe, including Brussels and Berlin, to outlaw the budget car service.”

But what happens if a local company makes good?

“The 28-year-old student is one of a growing number of people across France relying on ride-sharing to travel long distances. Driving the change is a homegrown startup called BlaBlaCar that is challenging state-run railway monopoly SNCF by creating an alternative transport network out of empty car seats.”

Is longer distance safer? What about how everyone loves European trains and how every U.S. city wishing to be considered “world class” wants more trains?

It turns out that when given a choice, people prefer not to take public transportation.

“BlaBlaCar’s ascent has come partly on the back of a deteriorating public-transport system across the continent.”

Even better:

“Its business model responds to the flaws in train travel his association has been complaining about for years: high prices and bad service . . .”

It makes you think that maybe a homegrown company has advantages over a foreign company providing what the local authorities cannot.

Or maybe they simply don’t like it when people make money in an unregulated environment.

“Because it keeps fees so low that drivers are sharing costs rather than making profit, the company argues it is quite different from a company like Uber, which also uses some nonprofessional drivers and bills itself as “ride-sharing.”

“There has been such a hijacking of the word ‘ride-sharing,’ ” said Mr. Brusson. “The key is about the driver not making a profit, and the driver going to his destination anyway.””

And yet, BlaBlaCar has business aspirations, as long as the drivers don’t make money.

“BlaBlaCar was originally called covoiturage.fr—simply the French word for “carpooling”—but its founders changed the name to BlaBlaCar to ease international expansion with a non-French brand they could own.”

Uber
France moves to ban Uber while homegrown ridesharing service BlaBlaCar continues to grow.

Miss Me Yet?

They say absence makes the heart grow fonder.  Its been since April.  You must be really fond.  Lots of interesting developments I should be covering more regularly.  “More regularly” is a sliding scale, of course.