Commercial lawyers, they’ve never had it so good – if you’re measuring just in dollars and pounds – but does this do anything for legal tech? And does it perhaps even undermine the drive to consider new ways of operating? Artificial Lawyer explores three scenarios.
- More Money, More Legal Tech
Let’s start off with a positive spin on things. Law firm partners have seen such significant profit increases over the last two years that one could believe that there really are no financial barriers to legal tech spending any longer.
I.e. more money means less inhibitions when it comes to spending on stuff that won’t either be a salary, or property, or marketing, or just good old-fashioned utilities and basic necessities, e.g. Word, email, pencil sharpeners…that kind of thing.
When someone at the firm proposes building out the innovation team, i.e. a group that experiments with and trials new tech, and perhaps supports internal development of new software, and then when a partner grumbles about the potential cost at the next management meeting, the argument that the firm ‘can’t afford it’ will no doubt seem a bit weak.
When a partner at a firm really wants to bring in a new tool to help their practice and in turn their clients, and that perhaps costs is in the low tens of thousands of dollars, how can a firm where the main shareholders are bagging collectively the GDP of Lichtenstein, suggest that it’s ‘too expensive’?
And then we have things like setting up incubators, or perhaps gathering some of the firm’s rapidly expanding income and putting a tiny fraction of it into legal tech company investments. Again, the argument that the firm is strapped for cash seems unreal.
Of course, none of this helps inhouse lawyers. They still earn about the same as before, or a bit more. Their budget also does not belong to them. They are employees and their legal tech spending ultimately comes from allocations agreed with the corporate’s CFO and Board. Some could point to external advisers and say: ‘Look at how they’re ramping up legal tech spending, we at least have to increase it on our side as well.’ Although that logic may not work unless they can prove a solid business case for any changes (And, see scenario 3 – maybe the dynamic is actually the other way around….?)
Which leads to the last point and the next scenario: just because richer lawyers can spend more on tech and fund more innovation projects, why should they? Richer lawyers could gold plate their law firm bathrooms if they wanted to, the real question is: will this spending help them?
I.e. just because you’re loaded doesn’t automatically make you less economically savvy. Law firms are still businesses that are owned by a group that works within them. If there is no bottom line benefit, then why spend a penny more than you absolutely need to?
So, this site would say that although it kind of makes sense that richer lawyers are bigger spenders on tech as there are less barriers and there is more potential budget, it doesn’t in reality follow through. Why? Well, see scenario 3.
2. More Money, Less Legal Tech
Let’s stay with the ‘why?’ of all this. If you are spending to make more money, as most savvy investors and business owners do, then why spend on legal tech that helps you to change how you work, if you can make so much cash from working in the same way you did 20 years ago?
I.e. beyond the basic utilities, e.g. a DMS, a billing system, and some kind of legal research library, why invest in technology that is fundamentally about working faster, smarter and more efficiently? Why productise? Why do anything to change the ‘time = money’ formula? Why strive to work in new ways when the old ways are so very, very good for your bottom line?
In fact, for those partners who have always been a bit cynical about spending any of their profits at all on anything other than the most basic of utilities, then the recent profit boom is proof that they were right. They didn’t need to change things to make more money. Their business prospered in ways they could not have imagined and without having to do anything differently (other than use Zoom and Teams a lot to work from home.)
Of course, the smarter partners will also realise that the recent bonanza was due to very unusual conditions. They will also see that no boom, nor a bust lasts forever. They will also perceive that while a lot of emergency, high level work swelled their coffers, the clients – almost paradoxically – seem to be getting more focused on areas of work where efficiency can play a part.
And if the clients are getting wise to efficiency and not splashing cash on old ways of working when they don’t really need to……then maybe pulling the plug on the innovation strategy is really not a good idea. In fact, maybe they need to go the other way…?
This site would argue that, as with scenario 1, although it may seem like common sense that more partner profits could equally mean less legal tech and innovation, the reality is quite different. Which leads us to scenario 3.
3. Legal Tech and Innovation Has an Inevitability
Few things are absolutely inevitable, but this site would bet on the following:
- Corporates are steadily realising that their legal needs are not all complex, that those legal needs can be described, measured and their ‘manufacturing process’ can be understood.
- If what you need to make or buy can be understood, then you can do something about it. You can make it in a better way yourself, or when you ask others to make it for you, then you can demand improvements. Naturally, such changes need objective data, measurements, and standards. So, this is not an easy state to arrive at. But, it seems to this site that this is where we are all heading.
- And, if we are heading to this new, more self-aware state, then things will have to change. Corporates won’t pay for ‘process work’ in the same way they did before. They will triage their legal needs more effectively. They will separate out what needs to be handled internally, what needs an ALSP / managed services approach, and what is really a super complex hot potato and needs to be sent out to a ’traditional law firm’ and worked on in the ‘traditional way’.
- And if that is the case, then law firms and inhouse teams will both have to up their game in terms of innovation and legal tech spending. But, not because they need legal tech or innovation – that’s putting the cart before the horse. It’s because they need to change, they need to improve how they do things, and integral to that – along with better alignment of people with specific roles, comes plenty of tech and innovative thinking about how to do these things better. I.e. it’s a means to an end.
- In short, it all comes back to the clients. If the clients put no pressure on the inhouse teams, then there is no pressure on the law firms, so there is no pressure (or significant opportunity) to change, and so little happens. [Note: this site doesn’t really see inhouse legal teams as ‘clients’, they are legal representatives of the clients, but they don’t really control the direction of the company, nor own it, that’s the C-suite and the shareholders.]
Whether law firm partners are super-loaded like they are now, or a little bit less loaded, makes no difference at all to legal tech spending and innovation in the long-run. The people with the real power in the legal market are changing and they are the ones who set the pace. Those people are called ‘the clients’.
When their perception of value changes then everything else changes. That is what will drive movements in legal tech spending and the focus on innovation.
Equally, changes to investment in tech may end up being seen as something that will be necessary to keep partner profits at a high level. Although it will only ever be one lever law firms can move. They will always find it’s easier to make the equity group smaller, increase leverage, and push up rates to sustain profits. However, more complex tech and innovative ways of working may become a utility that support the business.
And that has to be the goal. I.e. that change and rethinking work processes should become the norm. That waking up each morning and saying: ‘how can we do this better?’ (where better means more efficiently) becomes the standard model – as it is in so many other industries.
I.e. the point here is not about legal tech and innovation driving up profits, or becoming a greater area of cost, it’s about how it becomes increasingly integral to the ‘normal’ operation of all legal businesses and inhouse legal teams.
And, as noted, it looks like the people with the real power – the clients – are moving now in the right direction. Everything else then follows through.
By Richard Tromans, Founder, Artificial Lawyer, March 2022