Legal Innovation – The Future of Law Firms Part 1

Hello, and welcome to this next video, where we’ll explore the future of law firms. We’re in the early stages of a fundamental change in the legal profession. There have been some big developments that have changed the speed at which lawyers work. But not all that much has fundamentally changed the way that lawyers work in the last hundred years. Photocopiers, emails, electronic registers and online case reports are all big changes to the speed at which work is done. But the changes that are coming will affect the way the work is done. Law firms will employ different people with different skills, legal work will be done in a very different way.

The number of law firms will change, and the way law firms win work, and build their clients will be different. » There are three main pressures facing law firms. To do more with less, to provide a more commercial service and to embrace technology. Let’s talk first about doing more with less. For many years law firms have said to their clients, you can’t save money on your fees. We keep you out of trouble. We make sure that you’re on the right side of the law and we keep you out of prison. Price shouldn’t be an issue.

Since the financial crash of 2007 and 2008, a lot of companies have been saying to their lawyers, I don’t care, do it for less money. All over the UK, firms of all sizes have been reducing their external legal budgets and saying to their law firms, I still want the same service. Just do it for less. » Especially in corporate and commercial clients, there’s a lot more compliance and regulatory work than ever before. Recent legislation like GDPR and MiFID II have only increased this burden further. When there is more work to do and budgets are falling, it increases the pressure on law firms.

As an initial response to these pressures, quite a lot of large law firms look to lower their costs by relocating bits of themselves to cities that were cheaper than London. Either within the UK known as nearshoring, or outside the UK, known as offshoring. These approaches have declined in the last couple of years as law firms look at the possibility of using technology to speed up their work instead. » Law firms also need to provide a more commercial service. There is often inherent tension between a client and a law firm. The law firm wants to give perfect legal advice that cannot be questioned. A shining halo of legal brilliance, and the client doesn’t care, they just want to make money.

Clients often want advice, that is good enough for them to make an informed decision, but that advice doesn’t have to be perfect. Corporate clients, often look upon legal advice, as they would exchange rate risk. They’re prepared to accept a chance they made the wrong bet, as long as they can make decisions with good information and make those decisions quickly and cheaply. Lawyers are scared of getting it wrong and need their advice to dot all the i’s and cross all the t’s. This fundamental tension has led to a huge rise of in-house lawyers in the past 20 years. In-house lawyers will make those good enough quick decisions, that external lawyers are so worried about.

External lawyers are also in general, quite bad at adding commercial value. They don’t often turn around to clients and say, we analyzed the contracts you gave us and found you could move a lot of your work to your Bristol office and save yourself money. This kind of non-legal added value, really impresses clients and keeps them coming back. Lawyers are often in a good position to comb through clients’ contracts, commercial relationships and data. But they are not using that opportunity to help their clients because they do not have the right tools. » The other two main pressures, doing more with less and being more commercial, can be solved at least in part by embracing technology.

Law firms are notoriously risk averse and change averse. As a profession, we’re very slow to embrace new technology. We are moving in the right direction, but the pace of change is slow. If law firms don’t do it, someone else will. Embracing technology has the added benefit of not only solving a lot of the pressures on a law firm. But also demonstrating to clients that the law firm understands and welcomes technology. As more and more clients are tech based, or at least increasing their focus on tech, this increases the synergy between law firms and clients. The top five most valuable companies are all technology companies in one way or another.

And apart from Microsoft, they’ve all been fairly recent additions to the top five, technology is big business. » We can turn our attention now to the billable hour, a tried and tested way of billing the client. But the billable hour is a horribly antiquated way of forming a bill. It keeps all the risk with the client and none of the risk with the lawyer. If the matter takes longer than expected, the client pays more, the lawyer is never out of pocket. People who charge by the hour have little incentive to work efficiently, the longer it takes, the more they get paid. This model will simply not survive in the modern world.

There are already signs that the billable hour is on its way out. However, most of the current alternatives to the billable hour are simply an estimate of what the billable hour costs would be, by changing to a different format, like a fixed fee. A fixed fee that is based on the estimated billable hours, gives the client certainty and put some risk onto the law firm but it does not fundamentally change the way services are charged. » One big objection clients have at the moment is paying for junior lawyers to do mundane work. Work that could be automated or given to someone less qualified and therefore less expensive.

They also don’t want to pay for junior lawyers to be trained on their time. The future will likely bring with it a way of billing by how much value the client puts on the service they’re getting, rather than the cost to the lawyers. This raises all sorts of interesting questions about technology. How do the clients pay for the use of software? You can’t charge your software program out by the hour. It may have cost you millions to develop it, but how do you charge for it now? Could we see a subscription model for legal services where clients pay a monthly or a yearly fee for access to a suite of legal services?

Or by volume of work, some accountants even bill by the weight of paper they’re asked to review. Will lawyers start to share the risk with the clients and take larger or smaller fees depending on how profitable a deal is? Risk is a key factor that corporate clients want lawyers to share in. And by sharing risk, it will inevitably make law firms more focused on helping the client as a whole, rather than just providing legal advice. » Let’s talk a little bit about the changing roles in the legal profession. There will be different people employed in law firms in the future.

Particularly, we will see the rise of the legal technologist, a term used to describe people adept at technology in the area of law. In general, the rise of technology and a focus on diversity will see a greater focus on non-law graduates, particularly maths, science and technology. The first wave of legal tech pioneers that we are seeing now are often lawyers with an interest in tech. But in the longer term, these people are unlikely to be qualified lawyers. Instead, they will have a tech background with some training or experience in the legal market. Legal technologists will be essential to provide the AI services and software packages that will set the law firm apart.

And they will collaborate with the lawyers to do so. » It’s not just theory either, the SRA approved a seat in technology as part of the training contract in 2018, as pioneered by Riverview Law. ANO and Addleshaw Goddard have also made significant strides towards creating this career path. With the equivalent of legal technologist trainee roles and career paths created in 2018. Another example is Pinsent Masons, which currently employs a wide range of people who are not lawyers. They currently employ document automation specialists, legal engineers who do the process mapping, building workflow systems and automating them. Data scientists, digital designers for websites, technologists who are not necessarily legal technologists, but apply technology more generally, project managers and forensic accountants.

All these people in Pinsent Masons are client facing, that they work on client matters and have their time recorded to a file, not necessarily to bill it just to record it. This range of employees brings together the skills needed to tackle a lot of the issues we’ve discussed earlier about doing more with less, providing a more commercial service, and embracing technology. » It is likely that in the future, legal technologists will have a clear route similar to trainees with the opportunity to make it to partnership level later on. Here is the traditional model of a law firm. It follows a pyramid structure with a high ratio of junior lawyers to partners.

Law firms are expecting a lots of junior lawyers to leave the firm before they become partners for one reason or another. The pool of junior employees also includes employees who will not be lawyers, like secretaries for example. Law firms currently look a bit more like this. The structure remains fairly similar to the traditional structure. But you can see that certain tasks are outsourced and automated. Outsourcing and automation are impacting the junior employees most of all. In the future, it is likely that we may see something like this. In this model, you can see that the number of junior lawyers is similar to the number of partners.

Meaning that firms are not expecting as many people to leave, firms will be much more selective about who they recruit. But once you are through the door, it is a much smoother route to partnership. » As a percentage of legal employees, this will mean fewer traditional trainees and a more diverse range of jobs and skills within a law firm. Technology becomes a big percentage of the firm’s employees, as does project management and paralegals. It has been predicted that there will be a legal technologist promoted to partner level in the magic circle by the end of 2020. And I’m inclined to agree with this view. All this changes because of technology.

As it improves, this means that less qualified people can perform tasks that were previously done by junior lawyers. So with the aid of software packages, it’s likely paralegals, or even clients themselves may be able to perform some of the jobs that used to require lawyers to do. This does not mean that there’ll be fewer lawyers necessarily. There are plenty of people out there who want legal advice at the moment and can’t get it. As the price of legal advice falls, it’s likely that demand will go up, and there’ll be more work overall, even if parts of it are automated.