Last week, I compared the recent transformation of the TV industry to the changes happening in the market for legal services and concluded that the scale of “disruptions” were not quite on par. At least not right now.
Kristian Hammond is a computer science professor at Northwestern University who has experience watching other industries react to the introduction of artificial intelligence and reconfigure accordingly. Through a company he founded, Narrative Science, he has worked with journalists to build tools that write stories based on data.
The legal market is a topic Hammond is interested in since he and Northwestern law professor Dan Linna this year launched a cross-disciplinary class—made up of law students and computer science whizzes—that tackles problems brought in from real law firms like Mayer Brown. (A note to readers: Next year’s class is still taking ideas from firms.)
So, I was interested to hear the technologist’s perspective this week at an event in a Northwestern lecture hall on how technology will diffuse through the legal services market. And he delivered, especially with his views on law firms failing to innovate.
“If it is the case that the [law firm] business model is getting in the way, there is going to be something horrible that’s going to happen,” Hammond said at the event. “Essentially what happens is if there is a way to do something faster, better, cheaper and with fewer hours, and firms are not doing that, then you’ll get spin-offs into that technology and competition from them.”
I was struck by the sense of foreboding in Hammond’s warning.
So I spoke to a lawyer in attendance who’s seen law firm innovation from the inside, Jeroen Plink, CEO of Clifford Chance Applied Solutions. His views were surprisingly similar to Hammond’s, even if the two disagreed on whether the upcoming changes would actually be “horrible” for law firms.
Plink is a veteran legal industry innovator, having served as CEO for Practical Law Company and as a board member for companies including Kira Inc., Compliance.ai, and Casetext.
At Clifford Chance, Plink’s Applied Solutions team uses four approaches to change how legal work is typically handled:
- Utilizing technology like Kira for M&A due diligence internally;
- Project management;
- Right-sourcing using staff in lower-cost locations; and
- Selling technology solutions directly to clients.
The firm’s “CC Dr@ft” document automation technology, for instance, is being used by a large bank to do the paperwork for loans up to $30 million without the involvement of the bank’s legal department or outside counsel.
I asked Plink if he agreed with Hammond’s comment that “something horrible” was bound to happen to law firms that don’t adopt more efficient technologies. He said he wouldn’t classify the changes as “horrible,” but agreed law firms needed to adapt.
“Law firms no longer can get away with just working on the basis of the billable hour,” Plink said. “And I think competitors will come in. They will attack the firms that are still predominately doing the billable hour. So yes, I agree with his general sentiment.”
But perhaps a more important question is whether law firms can successfully compete with themselves. There is an inherent tension in a law firm oriented towards the billable hour developing a new group to minimize those hours. Plink said that is a reality he takes into consideration when designing new solutions.
“We look very closely at what we do and what kind of product we launch and we try not to cannibalize the law firm’s business,” he said. “But if there is business that will be cannibalized anyway, then we might as well have that business be cannibalized by our own technology subsidiary.”
Consider the loan document automation. Plink said Clifford Chance was not handling that work before it developed the automation product. The firm doesn’t lose any revenue as a result.
Of course, not much will be transformed if conventional law firm work is insulated from competition with new technologies. And that means clients will be needed to drive the type of “horrible” transformation Hammond sees on the horizon for law firms. Plink has a suggestion for that. He says in-house counsel should require their panel of law firms to use the latest technology.
“The entire industry needs to be aware of the technology solutions that are out there,” Plink said. “There is a general lack of understanding. But I think in-house counsel is the key to unlocking that knowledge.”
Worth Your Time
On Demand: Citi Private Bank and Hildebrandt Consulting are out with their year-end write-up on the legal services market. It includes an interesting new way to measure demand at law firms: looking at the number of matters firms handled rather than the hours they billed. The matters metric grew at a 2.4% annual clip from 2010 to 2018, compared to 1.4% for the hours metric. This means that law firms are spending fewer hours on each matter, but they are still earning more money per matter.
The report includes this statement, which could only be insightful in the law firm market: “This suggests that clients were happy to pay more for the right outcome, and were less concerned about the time spent to reach that outcome. It also suggests that the more efficient firms can become, the greater the opportunity to improve their margins.”
On Doing Better This Time: After the fiasco that ensued around the lack of diversity in Paul Weiss’ 2018 partner class, the firm and its chair, Brad Karp, vowed to do better. And the firm has indeed diversified its new partner lineup for 2019— three of seven new partners are women. The firm has also brought on several diverse laterals in 2019.
On ‘Legal Innovators:' That’s the name of a startup launched by a current and a former Shearman & Sterling lawyer that wants to provide an on-ramp to Big Law employment by bending the cost curve for new associates. Plenty of law firms are pursuing this model on their own, and there is a similar non-profit initiative led by academics.
That’s it for this week. Thanks for reading and please send me your thoughts, critiques, and tips.