New Law #1: Future-Proofing the Legal Profession

Law firms, innovation and modernisation

For some, law firms are not modern enough. Rae Digby-Morgan, a service design specialist at Wilson Fletcher, a business innovation consultancy, sums up this concern:

Law is missing a trick. It’s missing it so much that it’s leaving the door wide open for disruption — not just from the new kids sprouting startups all over the place but from [their] biggest competitors. It’s all going to depend on who realises it first…In short, I think we’re at a point where there is unprecedented opportunity for innovation in law, and equally at a point where big law may finally falter if it doesn’t get its innovation agenda right.

This sentiment largely stems from a frustration with an industry that has hardly changed over the past 100 years. There is yet to be a firm that really breaks the mould and delivers legal services in new ways with conviction and authority.

In his book Tomorrow’s Lawyers, Richard Susskind identifies three reasons why the legal profession needs to modernise itself. The first is the rise of the ‘more-for-less challenge’, which is about delivering legal services at a lower cost without sacrificing on quality. The second is increased liberalisation, which has seen a wider range of organisations entering into the legal market. The most notable of these include the ‘Big 4’ accountancy firms (KPMG, PwC, Deloitte and EY), often cited as the source of intensifying competition. The third is the influence of technology. This concerns the increased capabilities of machines and computers that “will radically alter all corners of our economy and society and legal work will [not] be exempt from any change”.¹

All three of these influences culminate in a greater challenge for traditional law firms; to deliver legal services and operate in a way that has not been done before. Such a challenge will require these firms to take on a new innovative mindset and reshape the long-standing orthodoxes that currently characterise the profession. In order to stay competitive, modern law firms will have to implement the necessary tools and strategies to differentiate themselves and address the intricacies of today’s economy. This is the essence of New Law.

Old Dogs and New Tricks

The quest for modern firms can be easily defined even if difficult to execute; to construct different ways of delivering for the customers of legal services. More specifically, the question for the legal profession is to develop “alternative and better ways of handling [the] limited understanding of human beings” in relation to legal problems.² This needs to be considered in the context of an industry facing the more-for-less challenge, increased liberalisation and the influence of technology.

One of the most prominent mistakes made by firms when confronting these challenges relates to how they interpret the task of innovating. The key to achieving great leaps of progress rather than slight variations is cleverly articulated by Richard and Daniel Susskind in their book The Future of the Professions in the context of power drill manufacturers. Some would argue that such manufacturers are in the business of selling people drills. However, Susskind et al point out that, in reality, their mission is actually to sell people holes in the wall and that a power drill is merely a means of delivering this result.³ Thus, when law firms are faced with the task of innovating, the first step should be to identify their ‘hole-in-the-wall’. In other words, firms should ask what it is they are actually selling to their clients. According to Susskind et al, law firms are chiefly in the business of helping people overcome their limited understanding of law when confronted with legal problems by using their practical expertise to deliver viable solutions to those problems.

However, it would seem that many firms fail to grasp this notion. As a result, firms often opt for lower forms of innovation that do not adequately address the major challenges of the profession. Neil Perkin, founder of Only Dead Fish, a digital consultancy helping businesses to become more innovative and agile, identifies two types of innovation of which can be commonly attributed to the efforts of law firms. The first is ‘incremental innovation’, which involves strengthening the core components of a product or service whilst maintaining the existing linkages between them. The second is ‘modular innovation’, which involves changing the fundamental technology of a product or service but not fundamentally changing how the product or service works.

Digby-Morgan illustrates her experience of these kinds of lower forms of innovation:

I met with a senior in-house counsel at a major corporation…She’d just come out of an ‘innovation session’…at one of their panel of firms. She told me that she didn’t think what she was seeing was anything more than standard value-add. Not innovation, but standard value-add. The real shocker? It was at one of the law firms held up in the industry as a leading innovator.

So far, technology has been used by law firms only to automate processes. Document review can now be conducted by machines trained to trawl through large volumes of documents much quicker and accurately than a paralegal or junior lawyer through the use of Big Data and machine learning algorithms. Document automation allows clients to answer a series of questions on a digital interface and produce the first draft of a contract without the involvement of a lawyer. Machines can even predict the outcomes of disputes and more accurately predict the behaviour of courts than “lawyers engaged in traditional legal research and reasoning”.⁴ Blockchain technology has been used to make the process of buying and selling properties simpler and quicker. However, the common theme among these examples is that technology is merely being used to automate processes rather than fundamentally change them in a way that adds unprecedented value for the client.

There are a variety of reasons as to why law firms can often only muster these lower-forms of innovation. One of them is cultural. Since the traditional business models of law firms has remained viable for such a long period of time with little disruption, the motivation to invoke drastic changes is almost non-existent. In addition, the nature of a lawyer’s work, and the way that they have been trained, consists of a strong adversity to the risk that innovation inevitably entails. A lawyer’s job normally requires them to eliminate or mitigate risks, not to entertain them. Ken Grady, an Adjunct Professor and Research Fellow at Michigan State University, describes this problem:

Large law firm partners like owning their businesses and running them how they please. Right now, it pleases them to make money with “few” risks. Altering the model suggests risks.

Innovation requires organisations to consistently test new ideas to find out what works and what does not work. Thus, successful organisations are able to, on the one hand, protect and grow existing products and services whilst, on the other hand, experiment with others to move the business forward and stay competitive. Eric Ries, author of The Lean Startup and The Startup Way, argues that this balancing act represents the “hallmark of a modern company”.⁵

But when lawyers refrain from this consistent idea-testing due to the fear of failing experiments, efforts to innovate are narrow and limited. The value in learning from mistakes, rebuilding ideas based on that learning and measuring the progress of those iterations is not properly recognised due to potent risk aversion. Ries shows how reversing this mindset can, rather than being destructive, produce significant results:

Think of the Amazon Fire phone. Over the course of four years, the project went from an idea detailed in an aspirational mocked-up press release to almost universal disappointment after its launch in the summer of 2014. Initially priced at $199, the Fire soon cost only $0.99, and by the following winter, the company took a $170 million write-down based mostly on unsold phones. Where a more traditional company might have fired people and destroyed morale, Amazon used this opportunity to learn and reorganise…Instead of shutting down Lab126 (the team that designed the Fire) and letting the people who’d created the Fire phone go, Amazon moved them to other projects: tablets, the Echo, the Alexa voice-activated assistant, and many things still to come…Whatever the Fire’s original business plan was, it surely didn’t predict what happened. But the phone was built with an assumption of risk that created space for the company’s reaction when it didn’t play out as expected. It’s that long-term vision—the understanding that the lemonade itself might end up not being a long-term bestseller, but instead some other bet might be—that allows the creation of a portfolio of experiments.⁶

This cultural reluctance is reinforced by a structural factor, which is the partnership model. Such a model can significantly stifle meaningful change being implemented. Susskind et al highlight its inherent disadvantages:

[T]he partnership model has innumerable shortcomings as a business vehicle. Most notably, it fosters a confusion between equity interest and management, it nurtures the paralysis that flows naturally from communal decision-making, and it is a poor mechanism for attracting and raising capital. More fundamentally, when professional work comes to be decomposed and sourced in new ways, especially by non-professional providers, the tasks involved will not require the spirit and methods of traditional professionals who have historically clustered in partnerships. Alternatively sourced tasks will be delivered through quite different entities — from startups in industrial parks to online, collaborative communities.⁷

The problem is thus both cultural and structural. Ultimately, law firms “place too much emphasis on current revenue generation” and not necessarily enough emphasis on “building long-term value.” In fact, “it is this short-term outlook that leads law firms to squander valuable opportunities to build long-term loyalty among their clients and lawyers”.

Thus, rather than embrace a different business model that would facilitate innovation and modernisation more effectively, many firms limit their efforts to those that involve little risk and reward. The consequence is that any efforts to innovate and modernise become insular and focused merely on making the firm “a little more efficient to defensively preserve partner profits”. Hence, it is only the lower forms of innovation, be it incremental or modular, that currently dominant the legal market.

As a compromise, many law firms will proudly promote their creation of, and investment in, ‘innovation hubs’. Such hubs act as the main source of new ideas to give firms a competitive edge. Many large firms have taken this route in recent years, including Allen and Overy, Linklaters, and Clifford Chance. Freshfields Bruckhaus Deringer have an innovation office area in London and a digital lab in Berlin, led by its Chief Digital and Technology Officer Charlotte Baldwin whose work was commended by The Financial Times for the FT Innovative Lawyers Europe awards 2019.

However, the drawback of these hubs is that while they may from time-to-time produce novel ideas, it is not a sufficient long-term strategy for ensuring that innovative thinking is prevalent across the whole organisation. Ries emphasises that “[m]odern companies need something more than just another innovation lab”.⁸ This is because innovation hubs effectively send a message to the rest of the firm that, when it comes to thinking of new ways to deliver legal services, that task is exclusively reserved for those in the hub. Ries further states that one of the strongly held beliefs in Silicon Valley is that “[g]ood ideas can come from anywhere, and people should be given resources and attention based on their talents, not their pedigree”.⁹

Innovation hubs do not necessarily foster this kind of environment. For law firms, the task of figuring out new ways of delivering legal services should be everyone’s concern and part of the day-job. That way, the development of these new ideas can come from those regularly dealing with the clients for whom innovation is supposed to benefit.

A further problem for law firms in their efforts to innovate and modernise is the lack of value placed on so-called ‘non-lawyers’. Legal technologists are crucial to the future of legal services, as they are the “skilled individuals who can bridge the gap between law and technology”.¹⁰ Collaboration with these technologists, as well as project managers, product developers, software developers and others will be highly advantageous. Clients are increasingly looking for solutions that can only be delivered when these various experts work together.

Although some firms admit to accepting more of these non-lawyers (such as Clifford Chance and their IGNITE training contract), the structure of their business models do not necessarily allow their contributions to be valued in the same way as fee-earners. Richard Susskind explains why this is the case:

The dominant culture in so many major commercial firms…is still for lawyers to churn out as many chargeable hours as possible. Underlying this practice is a business model for professional firms that has ruled for several decades—the idea, in theory and in practice, is to have a pyramidic structure at the top of which is the equity partner (the owner) of a law firm, beneath whom are junior lawyers whose efforts bring far more revenue to the firm than they are paid as salary. On this model, the broader the base of the pyramid, the more profitable the firm.¹¹

With this kind of system in place, the work of non-lawyers can hardly be recognised. If their work cannot be counted towards these chargeable hours, then it is quite difficult for their innovation efforts to be acknowledged across the firm and meaningful change is stalled.

Embracing New Law

In order to reverse these trends, law firms should take a number of steps to fully embrace New Law. The first is increased investment, but not just in technology and innovation hubs. Firms should invest in their lawyers to ensure that they are learning new skills, such as legal design, project management and software development. The second is giving those developing themselves the opportunity and space to try out new ideas. This means implementing the systems and measures that allow new ideas to be tested but also allow them to fail in a way that does not significantly drain profits. The third is ensuring repetition and constant engagement so that idea-testing becomes prevalent, tolerated and eventually accepted as the norm. Finally, law firms should create structures that actually reward those who take the time to create, develop and innovate.

Underpinning this over-arching mission of effective modernisation includes a number of practical initiatives that firms can take. One of the most important ones is the abolition of billable hours. Lynn & Brown is an example of a firm that has done this, replacing its time-based pricing with fixed-pricing. In an interview with Lucy Dickens on her podcast Doing Law Differently, Steven Brown, the firms’ founding director, explained that the transition to the new system started with initial experimentation with some services using fixed-pricing. Eventually, this pricing-model was implemented wholesale and the billable hour was completely excised. Vital to the success of the implementation, according to Brown, was utilising the knowledge and skills of those without a legal background. This was so that their services could be valued and charged in a way that was more customer-focussed.

Other firms can adopt a similar approach to implement new pricing models. Larger firms in particular can leverage the wealth of knowledge and experience derived from the numerous transactions carried out over time to identify reasonable fixed prices it could charge for certain services. This way, especially when meeting new clients, firms can be immediately transparent about costs and avoid having to give estimates. It would also allow lawyers to focus more on coming up with the best solution for clients rather than worrying about how much time it will take. Brown reckons that, with the use of fixed pricing, Lynn & Brown can encourage its lawyers to collaborate and think more creatively about the problems faced by their clients, thus enhancing the value if its services. Overall, the abolishment of billable hours can allow lawyers to focus more on creating value, thereby making it easier for innovation to become part of their work.

Firms should also engage better with technology. Richard Susskind argues that the task here is not to merely “automate current working practices that are not efficient” but to “practise law in ways that we could not have done the in past”.¹² To do this, firms should take an approach where the purpose of the proposed technology can be identified to then determine exactly how that technology can be used to optimum effect. This requires a client-oriented approach where the main goal is to recognise problems that clients actually encounter, and then brainstorm ways in which technology could help.

This is the approach adopted by The Law Boutique (TLB), a legal consultancy that works with in-house teams to help them work more efficiently within their company. In early 2019, it began working with a large London fintech. TLB worked alongside the company’s sole in-house lawyer to build an efficient and effective approach to contract management.

It started with a discovery phase where various stakeholders within the business were interviewed to understand how they interacted with the legal team. TLB also took the time to identify the technology already in use within the company and how it was being used. Alongside the need for a central database of contracts and to streamline the NDA creation process already identified by the GC, the discovery phase revealed that there was no single contract review process, with the business requesting contract reviews via various channels, such as Slack and Docusign.

Having identified these pain points, TLB worked with the GC to develop and implement solutions. A contract database was created listing all the live contracts with the ability to send out alerts when contracts were about to expire or were up for renewal. For new contracts, a documented automation tool for non-disclosure agreements and a contract review submission tool to help triage requests were created. This reduced inbounds to the legal team by 25% .

Law firms should use a similar method to successfully deploy customer-focused services with effective and purposeful integrations of technology. A great part of doing so will require collaborating with technologists, project managers, software developers, data scientists and others and making them an integral part of the business. Law firms will have to shift the exclusive value placed on fee-earners by, firstly, abolishing billable hours and then, secondly, hiring other professionals with experiences that are not necessarily related to law.

However, if firms are to attract these non-lawyers, then there needs to be a change in the way that they have traditionally marketed themselves. This would be in order to attract the necessary talents to the firm and present it as a place where non-lawyers would be appreciated. Dr Catrin Griffiths, editor of The Lawyer, makes this point in a piece making predictions about the legal profession for the next 10 years:

By 2029, a number of law firms will — deliberately or inadvertently — have digital influencers [and]…the biggest skills gap in law firms will be digital comms and branding, but law firms will struggle to attract the best talent unless they look and sound more modern.

The point about digital influencers is particularly interesting. Embracing these kinds of individuals may be a way for firms to achieve the modern image needed to recruit the individuals integral to their success. Eve Cornwall, a trainee solicitor at Linklaters, is one example of this. She recently started a vlog series on her YouTube channel documenting her experience as a trainee at Linklaters, giving a behind-the-scenes look at what it is like to work at the City firm. Such use of influencers may thus be a way for law firms to effectively attract the talent of the future:

When brands use a credible influencer as a brand ambassador, it can aid consumer sales, spread positivity about the brand as well as raise brand awareness. Paving the way for potential future relationships between them and the brand, influencers act as the face of a brand, helping them to grow and develop across social media. Brand ambassadors also humanise a brand, making them appear personable and friendly as opposed to being a faceless company. They also help to protect a brand’s reputation, defending them against any negative press and sharing only positive and real experiences.

Ultimately, the reason why the use of influencers can be so effective is that their followers trust their judgement. Tamba reckons that “84% of consumers turn to [social media influencer] reviews as a trusted source of information when it comes to a purchasing decision”. Similarly, those same followers may view the experiences of influencers as trusted sources when choosing where to work. This type of marketing is essentially the “online form of traditional ‘word of mouth’ marketing”. Thus, by using influencers, and perhaps encouraging lawyers to focus more on their own personal brands online, firms can positively broadcast themselves to a wide pool of professionals. Also, such branding may help to attract other influencers as clients as well as business partners, since such individuals will likely be the entrepreneurs of the future.

A final step that law firms could contemplate in their efforts to modernise themselves is to focus their services on the fields of technology and science. This would mean increasing expertise in areas like data protection, artificial intelligence, gene editing and other issues that will significantly shape society. Those firms that do may be involved in the defining court cases and government policies of the future. Jamie Susskind explains why in his book Future Politics:

Politics in the twentieth century was dominated by a central question: how much our collective life should be determined by the state, and what should be left to the market and civil society? For the generation now approaching political maturity, the debate will be different: to what extent should our lives be directed and controlled by powerful digital systems — and on what terms?¹³

In navigating this question of the 21st century, the role of legal experts will be crucial in taming the impact of future technological innovations as well as their creators.

A New World Awaits

The legal profession is ripe for disruption. That it has managed to largely stay the same for such a lengthy period of time is evidence of this; nothing lasts forever. Therefore, those firms that accept the impending future and the need for change will have a better chance of remaining competitive. Conversely, those firms that continue to operate in their silos and believe that disruption will not affect them will eventually struggle and get left behind. In order to escape such a demise, as Ken Grady argues, firms will, initially, need to embrace a fundamentally different culture:

We have yet to have a player of size in the industry break with tradition and reinvent legal services. I don’t mean tweak what we do, I mean build a new model from the ground up. This isn’t because of a lack of tools or know-how, it is a cultural thing.

Thus, the main message for firms can be concise: if you fail to prepare, then prepare to fail. New Law is coming.

Sources:

[1] Richard Susskind, Tomorrow’s Lawyers: An Introduction To Your Future (OUP 2018), 12.

[2] Richard Susskind and Daniel Susskind, The Future of the Professions: How Technology Will Transform the Work of Human Experts (OUP 2017), 42.

[3] Ibid, 37.

[4] Susskind (n 1), 51-52.

[5] Eric Ries, The Startup Way: How Entrepreneurial Management Transforms Culture and Drives Growth (Portfolio Penguin, 2017), 29.

[6] Ibid, 32-33.

[7] Susskind et al (n 2), 139.

[8] Ries (n 5), 44.

[9] Ibid, 76.

[10] Susskind (n 1), 136.

[11] Ibid, 17-18.

[12] Susskind (n 1), 15.

[13] Jamie Susskind, Future Politics: Living in Together in a World Transformed by Tech (OUP 2018), 1.

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