In the last year rarely a week has passed without a law firm announcing a new legal technology initiative or a new legal start up announcing the launch of a new legal technology offering. In the maelstrom of apparent activity, it is essential that law firms consider what is really happening and what products are becoming available that will help law firms deliver more to their clients. In an age when major clients are requiring their law firms to provide services which are “better, cheaper and faster”, law firms need to consider how legal technology can help them to meet their clients expectations, provide an attractive and exciting workplace to their employees, and to achieve an acceptable level of profit for their partners.
This article is divided into four parts. The first considers the drivers for change, the second reviews the impediments to change, the third identifies the range of legal technologies currently available and the fourth lists likely new developments over the next few years.
When examining legal technology, it is important to place any developments in context and to explain why they are happening. Law tends to be a relatively conservative profession and as a result any change tends to be evolutionary rather than revolutionary. In addition, new legal technology products can be initially over- hyped, so it is important to distinguish between a level of noise in the market and what is happening in practice.
The Drivers for Change
The last five years in particular has been a very important period for legal technology and its adoption by law firms. This has been driven by the convergence of a range of factors.
Clients. Clients are increasingly demanding value for money from their legal services providers. This is evidenced by the greater selection and use of panel law firms (often appointed following an increasingly rigorous procurement process) and expectations as to fixed or capped fees even for relatively complex work. This new approach to charging incentivises law firms to be more efficient in their provision of legal services. If they do not become more efficient, they risk achieving a lower profit margin on the work they do and thereby lower partner profitability.
Better Practice Information. As law firms have invested more in practice management and financial reporting systems, they have increasingly more robust and accurate data as to the profitability of the work that they do and the profitability of specific client relationships. This enables a spotlight to be shone on less profitable parts of the business or less profitable client relationships. In order to improve profitability in such areas, legal technology has been seen as one of the tools available to achieve and improve such profitability.
Lawyers. Younger lawyers, especially millennials, have grown up using technology and they expect to use it in their workplace. They are increasingly reluctant repeatedly to undertake repetitive mundane tasks where they gain little job satisfaction and are not continuing to learn. Accordingly, law firms that do not adopt legal technology risk reduced lawyer satisfaction and motivation and increased lawyer attrition. Furthermore, in many countries lawyer salaries have been rising at a significantly faster rate than the rate of inflation. In order to continue to grow their profitability, firms need to ensure that the available work is delegated to the cheapest level of competence and that the lawyer’s level of competence is increased as quickly as possible. A range of legal drafting tools and on-line technology solutions can help to achieve this.
Speed. Expectations as to how quickly lawyers should work have changed significantly over the last decade. Where once a client may have waited a week or more for a draft document and days for revisions to be made, now there is an increasing expectation that initial drafts, even of complex documents, will be made available in a matter of a few days and that revisions will be turned around in a few hours.
The Impediments to Change
With the range of drivers for change mentioned above, it would appear inevitable that law firms would need to be urgently applying legal technology to their business in order to maintain their competitive position. However, the rate of change has been impacted by a number of impediments to change.
The Chargeable Hour. Although the amount of legal work undertaken at a fixed or capped fee is increasing, in many countries (especially the US) and in many practice areas the chargeable hour is still, for many clients and law firms, the preferred method of charging. Within reason, the chargeable hour rewards a law firm for inefficiency and certainly provides little to no incentive to increase efficiency as greater efficiency may result in the law firm receiving less income.
Perception of Work Type. Although many lawyers may accept that some legal work can be commoditised or systematised, they often counter that this does not apply to the work that they do which they claim is highly bespoke, not repeatable and incapable of any systemisation. While it is clear that some lawyers do highly bespoke work, it is rare for every part of their advice and its implementation to be genuinely bespoke in every aspect. Indeed, this is an area where there is often an increasingly different perception between the law firms and the client as shown in Figure 1.
Fear. Some lawyers are genuinely fearful that any changes to their way of working will leave them professionally exposed. If work that they do can be done by others they will either need to generate more work to keep themselves busy or accept lower remuneration in the future. Accordingly, they may wish to delay the impact of legal technology on their practice for as long as possible.
Precedent. Lawyers by approach tend to be backward looking. They tend to assume that the way they have always approached a matter is the best way of doing so. This approach can make it difficult for lawyers to be open to new ways of operating and very dismissive of potential solutions that are not immediately better than their current way of working.
Tech Hype. Some commentators and legal tech providers have been guilty of overstating the rate of change that legal technology will cause to the legal sector and/or the functionality of the legal tech products available. This has caused a level of disappointment and frustration with the legal products available and reinforced the view of some lawyers that their existing method of working remains preferable.
Profitability. Law firms are generally very successful businesses. They see year on year growth in both revenue and profitability. Accordingly, they see little immediate need to change their working model. Indeed, some believe that almost any investment in legal technology will be expensive and time consuming and divert resources away from generating and servicing client works.
It is against these drivers for change and impediments to change that any case for legal technology has to be viewed. The demands of clients and the changes within a firm’s local market will often dictate the pace of change within any specific law firm.
Without going into all of the legal products available, I have sought to group the products into a range of categories.
Document Review. Document review systems are generally designed to accurately review large volumes of documentation and to accurately identify and extract data. They were initially developed in the US as e-discovery tools in view of the high cost of the traditional legal discovery process in litigation. They are increasingly used outside litigation in regulatory investigations, M&A due diligence and real estate property portfolio reviews. This technology is particularly valuable to law firms undertaking document intensive transactions and litigation.
Intelligent Drafting. Intelligent drafting tools take a firm’s precedents or recurrently used documents and by using a specific template of options enable a first draft document to be prepared quickly and consistently. They can also include variations of provisions to be used in negotiations to accelerate the negotiation process. The initial coding of the precedent with the appropriate options can be a time consuming process so these tools are particularly valuable for firms using a relatively high volume of similar documents.
Client Portals. Client portals give clients access to a range of data relating to engagements the law firm is undertaking for the client. They may permit the client to review the status of the transaction, comment on draft documents, provide instructions and review the costs incurred to date. When combined with matter management, they can also provide a repository of the client’s past matters and transactions including alerts as to key dates (e.g. the date of a rent review in a commercial lease).
All of these tools are currently well established and being increasingly used by law firms. But very simple tools can also be provided. Any firm can develop an app on a specific area of interest to its clients and make this available to clients. These can include answers to frequently asked questions or decision trees. Admittedly this may result in the firm giving away some low value work, but by clearly demonstrating its expertise, should position it to receive more complex and valuable work on that topic from the client.
A number of other legal technology products are also being developed. We identify some of these.
Market Practice. Firms can now analyse the past transactions that they worked on and identify how a document developed during negotiations and how market practice in a particular area has evolved. Potentially this enables firms to draft more even handed documents at the beginning and to speed up the negotiation process by making the lawyer aware of what changes have been accepted in the past. It also gives the firm greater authority either to advise the client that the changes are acceptable or to counter the arguments of the lawyers on the other side by referring to transactions involving that other firm where they accepted the provision. Such systems tend to work best for firms with a significant body of historic documents, but other firms may have access to documentation via stock exchange or other regulatory filings.
Data Analytics. Data analytics has a number of implications for law firms (see Market Practice above). It can also be used to provide rigour as to a range of internal issues. It can be used to analyse HR data over a number of years to identify issues with the firm’s recruitment, retention and treatment of staff. It can be used to analyse the pricing of transactions and why the costs of a transaction over ran, and to inform future pricing decisions for similar projects, or to ensure that such future projects are appropriately staffed, and work appropriately delegated to protect the firm’s profit margin.
Outcome Prediction. Another important use of data analytics is to predict the outcome of a transaction or dispute. In the US and UK tools have already been developed to identify the likelihood of success in litigation, the arguments a particular judge is likely to favour or not, the expert witnesses a particular judge respects or does not, and the counsel that are most successful in this type of claim. As these tools become more widely used, it is likely that clients faced with a realistic estimate of their odds of success will seek to settle earlier rather than proceed to a full trial.
Online Dispute Resolution. As the conduct of traditional litigation continues to be seen as very expensive it is likely, especially for lower value disputes, that there will be an increasing use of online dispute resolution processes either developed by the courts themselves or by suppliers or trade associations. Many readers have probably already had disputes relating to goods purchased on eBay and other online platforms resolved this way.
Blockchain. The use of blockchain technology to negotiate and agree documentation is at an early stage. However, both the level of security it has and the audit trail it provides is likely to make it attractive in transactions where there are many conditions to be met or a material risk of fraud. A group of European banks did a trial of blockchain for trade finance transactions (a traditionally paper heavy process) and claimed that it reduced transaction times by some weeks and reduced the bank’s processing costs by up to 75 percent.
This list of existing and emerging legal technologies may appear daunting for many firms. But it does not need to be. Many legal technology tools can be hosted in the cloud and are available to firms on a pay per user or pay per transaction basis. Accordingly, there is not necessarily a large capital cost of adopting new legal technology. While onshore or offshore legal process centres or law firm sponsored legal tech start up incubators may be outside the reach of smaller firms, there are a range of things smaller law firms can do to meet the client’s needs for “better, cheaper, faster”.
1. Be aware. Law firms need to be inquisitive as to what legal technology products are available, how useful they really are and how they are being used.
2. Talk to Clients. Many in-house legal teams are just as confused about legal technology as law firms. By talking to them the firm can become aware of the client’s pressures and concerns and help the client find the right solution in conjunction with the law firm. Indeed, many UK law firms now offer specialist consulting services to the in-house community.
3. Look at your practice. Understand the areas of your practice that are facing particular pricing pressure or that consistently achieve a lower profit margin. A review of why the margin is lower will help to identify the necessary action points. If the scope to raise pricing is limited, it will be necessary to
consider how the work is done. Is the work effectively managed; is work delegated appropriately; can legal technology be deployed to take cost out of the processes?
4. Be Open. It will be necessary to challenge the way work is currently done. This may require adopting new ways of working and more effective delegation and project management. Lawyers need to open their eyes to new approaches and not merely assume that the way they currently work is the optimum. It rarely is.
5. Experiment. It is important that firms experiment with legal technology and new ways of working. Some legal technology will not deliver what was promised or may initially need more lawyer input than expected. Don’t stop at the first difficulty, but conversely don’t plough on if the project is not meeting the necessary milestones.
Compared to many businesses, law is lucky in that the pace of technological change is uncertain. This gives firms time to adapt. However, although the pace of change is uncertain, the direction of travel is now clear. Firms that fail to respond to this new reality are preparing to fail.