default logo

The Changing Legal Ecosystem

I report here on the panel The Changing Legal Ecosystem from a private meeting of large law firm knowledge management professionals. The panelists are two founders of AI companies, a founder of managed legal services provider, and one in-house counsel. The moderator is a CKO. This is a live post so please forgive typos or misunderstandings of meanings. Ground rules of this conference preclude identifying speakers or audience member.s

Intro: When we met one year ago, no one expected Brexit or Trump. Why? We did not have good information and we had a bias in one direction. This panel will focus on legal: what you hope does not matter, you have to deal with reality.

AI Co-Founder. As a new lawyer, I was taken to meet the firm’s biggest client. At the time, a very big financial institution had ONE in-house counsel, the GC. The firm worked on a problem for 9 months. Then, lead partner and GC discussed how the year went. They agreed on single number for what the services were worth. The firm sent a one line bill for services. That was an AFA.

That type of law practice no longer exists. It was a craft activity, akin to the medieval guilds. Legal services changed very little from the time of the guilds through the 20th Century. Things have changed.

That financial institution is now a major multinational with 1000+ lawyers globally. Today, solving its global problems requires multi disciplines: accountants, statisticians, and analysts.

When I started as a lawyer, only lawyers had access to key legal information. Now, that info is readily available. And the privileged position of lawyers is much diminished. But it’s not clear that lawyer productivity, despite much new tech, is that much higher.

Another change is that clients are no longer partners – they are buyers. It’s a very different mindset. In this changing world, the role of lawyers has changed. Traditional law firms have broken into multiple segments that are differentiated. Some law firms have created alternative delivery mechanisms. Many alternative providers now support legal work.  Today, we are also seeing more automation to answer legal questions.

More change: multi-sourcing. Bring work in-house, work with multiple providers, teams of multiple law firms, virtual law firms, and other ways to obtain solutions to legal problems.

Founder of Managed Legal Services Provider. I sometime think of lawyers as S. American fire ants. Avoid bites, they do their work as individuals but have automaton behavior. They respond to threats in a very coordinated way. Fire ants, like lawyers, respond to and adapt to a threat quickly. For example, when they detect floods coming, the grab each other and they float as a unity.

So what do we mean by a legal ecosystem: interactions between and relationships among the participants in the same space or segment of the environment. Law firms, law schools, in-house counsel, regulators, alternative providers are the “living elements” of the ecosystem. The non-living elements are regulations and other exogenous variables. The arrival of technology and other substitutes to legal services are also an element plus the growth of VC funding – $750M since 2011 – is another factor.

Another Founder of an AI Company. As we started the company, we looked to other industries. We looked at travel because it is the industry that has changed the most in the last 25 years. We have gone from a world of many travel agents to fewer who were more efficient to a self-service world. Today, the original travel agents are tiny fraction of the travel market. We think the same thing is now happening in legal.

In 10 to 15 years, law firms will be a much smaller percent of the total legal market. While many of the legal start-ups – tech or otherwise – will die, others will grow and new ones will form. The change is actually happening now. Google has a person dedicated to automating as much of legal work as possible. Internal clients of Google use tech whenever possible and only work that machines cannot handle are escalated to live lawyers.

What does this mean for KM? Invest in tech, invest in operations experts. Fight for seat at table because some law firms don’t get it. Automate as much as possible. Lawyers have to focus on the most complex problems. “Gear up, standardize, and good luck.”

In-House Counsel. Relates stories of how very big companies do a bad job of managing key information, especially contracts. Instead of having a digital dashboard, too many lawyers have piles of paper. Lawyers use email rather than have workflow or collaboration tools. Too many lawyers rely only on MS Word and Excel and are under-equipped.

While AI and blockchain are interesting, we have to focus on getting the basics right. Too much info still sits on hard drives. Central systems are weak. Emails are uncontrolled. Too much info is unstructured but should be formalized and structures. All info should be digital, stored in normalized format, and on a single platform. That single platform does not yet exist though. Today, for example, contracts exist either as loose files or in a contract management system. But it does not communicate with the negotiation email or the operational documents that the contract causes to be generated.


Discussion

Q: Will the trends change how we negotiate contracts? For example, if I buy on eBay or take an Uber, there are no reps and warranties (or they are boilerplate). We’ve moved from central control of transactions to crowd sourced ratings. Can this model apply to bigger agreements?

A: If clients want strategy, they go to MBB. If they want money, to a bank or i-bank. As law firms, we really sell insurance in the form of contracts. Lawyers can assess risk and help de-risk transactions. Our clients will, in the future, buy legal services with an app that collects matter characteristics.

A: When derivatives business first started. Each contract individually negotiated. Today we have ISDA standard contracts, reducing complexity hugely. Now DTCC is putting together blockchain to assist in managing the transactions. This is driving legal work out of they system.

A: Is law more art or more science. As it moves to more science, gaps close. References Shake app to build contracts. That company did not work out but it points the way to future. You have to change the system more slowly than do it all it once. Get change one lawyer or organization at a time. Automation allowed travel market to grow… so legal market pie will grow but will be distributed differently.

A: Agree that legal market will grow. Lawyers only work on a tiny piece of the overall contracting process. A&O is one of the few firms that seems positioned to compete with Big 4. One company realized that its law firms were building proprietary data rooms. It did not want to be held captive to them. It pulled data to its central platform and saved millions of dollars. That was basic automation. It can go much further.

A: Look at airlines – they have agreed to standardize on Amadeus for many operations. It created standards that make entire industry more efficient. This standardization was necessary for inter-operability.

A: Companies likely will contribute contracts to central source for standardization. It may not happen to Big Law but Big Law will see a smaller and smaller portion of transactions. The emerging group of law department director of operations are sharing information and driving standardization. Companies are beginning to work on standards.

Q: We have talked about these analogies for many years. What will happen right over the horizon. What will alternative providers do in near term?

A: I am deeply skeptical that horizon has that much in it in the short term. My benchmark is the adoption of predictive coding in eDiscovery. We have studies showing that tech assisted doc review is better than human review. After 10+ years of having that tech, penetration remains less than 20%. Clients do not insist on its use. I can’t understand why GCs do not insist on predictive coding. Progress is slow. It changes very slowly.

A: I am more of an optimist. Law firms will recognize that they will need engineers and operations professionals. In this room, there will be big winners and losers. EDD took time but hearing LTNY keynote… everyone is talking about legal tech, more dollars are flowing into legal tech and alt providers.

A: AI in legal is like teenage sex. Much more talk than action.