Welcome back to the Big Law Business column on the changing legal marketplace written by me, Roy Strom. This week we look at the progress tech companies have made in automating commercial contract negotiations and what that means for in-house lawyers. Sign up to receive this column by email.
Here is one question that legal technology companies are asking: Do lawyers need to have a central role in how companies negotiate contracts?
Not that corporate America doesn’t need legal advice when signing agreements. The question is really about two types of change: helping companies sign acceptable contracts faster and letting them analyze what’s inside those documents. Taken together, this is largely what is meant by the corporate-speak “contract lifecycle management.”
There is wide disagreement on how quickly those changes will occur and what role in-house lawyers will play in a more automated contracting process. We’ll get to that. But first, the news.
DocuSign, a publicly traded company that analysts estimate will have nearly $1 billion in 2020 revenue, is among the best-known companies in the very literal “sign-contracts-faster” competition. It is the most popular platform for e-signatures.
Last week, DocuSign made a $188 million investment in the second part of the competition, better understanding what is inside corporate contracts. The company announced it will purchase Seal Software, a legal technology company that uses artificial intelligence to analyze documents and provide reports on what types of clauses they include.
Seal might be thought of as part of the back-end of this two-part equation, helping companies sort out what’s in their agreements after they’re signed. But that isn’t all that DocuSign Chief Operating Officer Scott Olrich and Seal President Jim Wagner were excited about when I spoke with them.
They talked about a soup-to-nuts product that DocuSign calls an “agreement cloud” that minimizes the role of in-house lawyers by helping business people, find, negotiate, edit, and sign contracts.
“I fundamentally believe that this idea of the agreement cloud is going to open up the legal function to be a lot more strategic than it has ever been,” Olrich said. “And we are going to democratize the technology to make it a lot easier for the sales reps, the service people, to be empowered to conduct business in a much more ‘self-service’ way.”
Wagner said his company’s software would increasingly be used to edit and negotiate documents, and would eliminate the need to go directly to a lawyer for much of the contracting process.
This probably does not sound like the way contracts are handled in the legal departments you know.
DocuSign’s own research shows that 27% of companies use contract management tools. More companies, 31%, manage contracts using spreadsheets like Microsoft Excel.
Prashant Dubey, vice president of contract solutions at Elevate Services, says even at some of the country’s largest companies corporate lawyers still “run down the hall” and ask paralegals for help finding contracts.
There is a real opportunity for DocuSign and Seal to help businesses figure out what is inside their contracts, Dubey said. But he doesn’t think companies should be trying to take lawyers out of the process of getting contracts signed.
“The legal obligations of a company are not trivial,” he said. “And I don’t think it makes sense to automate it to the point where you aspire to remove lawyers from it. That’s not democratizing it. That’s increasing risk to the organization.”
The debate will likely heat up as companies like DocuSign and others release more “self-service” products. So, how can lawyers ensure their voices remain part of the process?
Dan Linna, a professor at Northwestern University Pritzker School of Law, says they should develop metrics that show the value they add to the contract negotiation process. (The International Association for Contract & Commercial Management is currently accepting research papers on the process.)
Lawyers should be answering empirical questions, Linna said, such as how much revenue is lost by the length of negotiations or the lack of insight into what contracts actually say. That way they can help design a new, better way to negotiate and analyze contracts.
“Otherwise, there are plenty of other super-talented professionals who are not lawyers who are looking at unlocking the contracting process and unlocking millions of dollars in value,” Linna said. “They will bring in lawyers where they need to, but they will not let lawyers stand in the way.”
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On Atrium: Justin Kan’s legal tech startup Atrium is closing its doors, leaving only a small spinoff law firm in its wake, my colleague Sam Skolnik reports Back in January, after the startup laid off a number of attorneys, I wrote about Atrium’s decision to refocus its software business and the challenges of building a software-enabled law firm.
On Iconic Leaders: Jack Welch, the former General Electric Corp. CEO, died this week at age 84. Bloomberg Law’s Brian Baxter covered how Welch reinvented the role of in-house lawyers at the conglomerate he ran for 20 years.
On Lateral Hires: It was a wild week for lateral moves inside the country’s largest law firms. Here are some highlights:
Baker McKenzie added to a women-led financial services regulatory practice. Kirkland & Ellis hired a CFIUS partner while losing two private equity partners to Gibson Dunn and seeing its former data privacy co-leader join Sidley Austin. Wilson Sonsini hired an Irell & Manella partner who won the reality TV Show “The Amazing Race.” Morgan Lewis, Foley & Lardner, Paul Hastings, and Cleary Gottlieb were busy too.
That’s it for this week. Thanks for reading and please send me your thoughts, critiques, and tips.