Editor’s note: this piece was originally delivered as a keynote speech by Mr. Hughes at the Arab Lawyers’ Forum held in El Gouna, on the 1st March 2017. He has kindly shared it with Law Today for publication.
Ladies and gentlemen, good morning. Sabah alkhyr. I am delighted and honoured to be with you in this very beautiful part of Egypt, and to talk a little about the International Bar Association and some of the trends we see in the world of law.
Just in case some of you may not be familiar with the IBA, it is a truly global association of lawyers, founded in 1947 alongside the founding of the United Nations, and having on its Council almost 200 national bar associations and law societies.
The IBA is proud to have over 100,000 individual members, all of whom have practices in which they represent clients conducting transactions across borders, or are in-house lawyers. The great majority of our members are among the leading lawyers, or from the leading firms, in their cities, working on the most interesting deals and transactions. In other words, people like you. I am completely confident that if each of you too were to become an active part of our membership, you would enjoy having these new contacts, and benefit from them in a whole variety of ways.
We hold over 50 conferences a year, in many different cities, on different legal specialisms, and in addition our Annual Conference is the largest yearly gathering of internationally-minded lawyers. This year we are in Sydney, in early October; next year, just across the Mediterranean, in Rome.
Those of you who attended last year’s wonderful gathering in Casablanca may remember that I spoke about some of the challenges of developing an international practice. Those challenges have only intensified in the past year, and from the many conversations I have had with law firm leaders as I have met them around the world, it has been very striking to me this year that the question of how to use new technology in the law firm has risen to the top of the management agenda in many more firms, and that in a significant number of jurisdictions this is now seen as an issue central to maintaining and growing a firm.
I should tell you that I am hearing two kinds of conversations. One is from firms or partners with immense experience, who have practised law for a very long time, and want to keep doing what has always worked so successfully for them – in other words, giving their wise, personal advice to clients, and delegating the more standard parts of the deals to a younger team in the firm. They tell me they read about the new technologies, but they prefer, thank you, to stay as they are. We all, no doubt, can sympathise with that. In a recent survey of law firms, the main reason given by firms who were not modernising, was “partner resistance”. As one commentator has said: “pursuing innovation is almost the opposite of what lawyers are trained to do”.
There are still plenty of lawyers telling me they are not experiencing the economic pain to want to make these changes. I’m happy for them! This is perhaps particularly true amongst those whose clients are still willing to pay by hourly billing. I think we all realise that hourly billing can be an institutionalised disincentive to looking for greater efficiency in our work. This has been an interesting management issue for a while, but one which now, with the change in approach taken by many clients, is gradually becoming – whether we like it or not – more of a medium-term risk for a law firm to take.
But as we know, there are still plenty of traditional clients too, not yet interested in forcing new behaviours on their law firms. Perhaps the best advice I have heard for law firms who wish to stay traditional, is “focus all your business development on finding the most traditional clients in your market.” But the catch, of course, is that these are also the clients least likely to change from their current advisers.
Meanwhile I am hearing more and more other lawyers telling me about the new business relationships their firms are making with software providers, to commoditise part of their legal service, and make it cheaper for clients. These firms regard these investments in two ways: first to deal with competitive threats, because they see some of their competitors making similar investments, which might be able to undercut them substantially on price if they don’t do this too. Second, as perhaps a once-in-a-generation opportunity to really expand their own firm, in the knowledge that at least some other firms will not make this investment, or will not make it so well or so quickly.
So here are some important and difficult choices – unfamiliar choices – for law firm leaders. How are different types of firms responding to them? The largest or the most global firms are starting to make heavy capital investments in contract software, big data analysis and artificial intelligence. Some are doing it by creating alliances with technology businesses, as for example Slaughter & May’s alliance with Luminance, a UK company which, incidentally, presented at our Annual Conference last year. Some are creating new parts of their business: for example, Dentons has created New Law, a subsidiary run for them by a west coast digital economy entrepreneur. New Law has a new culture, uninhibited by old law firm culture, in which young IT specialists work systematically through all aspects of the legal services Dentons provides, trying to identify the best areas to automate and commoditise. Firms such as this often involve their most senior partners in briefing the IT designers, to ensure that all the subtleties as well as the routine parts of a complex deal can be translated into software.
Such firms are saying that in even the most complex multinational deal, the truth is that perhaps as much as 80% of the work can be automated – i.e. the cost can be cut for the client, and the offer of that automated service made available to attract new clients.
They say the picture for the associates in the firm needs managing. A lot of the work which in the past they used to do has gone and this is likely to mean there will be fewer associates per deal in the future than there are now. But it also means the younger people are freed from the duller, more routine work that used to dominate their days. They can get closer to the strategic parts of the deal, give more support to the lead partners on that, and they can start trying to attract potential new clients through this new way of working. In short, they feel they have the opportunity to deliver more added value to the firm, and to clients, than in the old model, and I am told they love that.
The firm also builds client loyalty, by showing that it is responding to what is an almost worldwide trend right now: that clients are demanding “more for less” – more service for lower cost.
Clients of course are increasingly aware that they too can commoditise or “unbundle” different parts of legal services, sometimes going direct to the new types of high-tech legal suppliers. Machine intelligence is most advanced in the area of discovery, but it is also very much underway in legal search, document generation, brief and memorandum generation, and even the prediction of case outcomes. The ACE programme developed by RAVN Systems, for example, automatically reads, extracts and summarises information on relevant law and precedent. Another example is ROSS, linked to IBM’s Watson programme. ROSS is an “artificially intelligent attorney”, which answers legal questions by reading the entire body of law and giving a cited answer with topical readings from legislation, case law and secondary sources. Wow!
The total market for legal start-up suppliers is now very substantial: 1,000 of these companies were recently valued at a combined 4.3 billion US dollars. So this has arrived, at least in some legal markets. One of them, Axiom Law, recently described as one of the top ten game changers in the legal profession, already has 1,500 employees worldwide, supporting clients on automated end-to-end contracts processes, involving drafting, negotiation and execution.
Fortunately, these suppliers do not intend only to compete against law firms, they are also very willing to supply law firms, so that a firm’s own service to its clients can incorporate these benefits. I am seeing this happen on automated document assembly, online legal guidance, workflow systems, online dispute resolution, big data analysis, artificial intelligence problem solving, and e-learning and training, just to give some headline examples. This model, with law firms using new technology in this way to enhance their services, will clearly be a significant force in the future. If we understand the new technology as offering enhancement, not replacement, of our role, we can be more comfortable with it, and probably nearer the truth of what will happen too.
Traditional law firms of course have always hoped to bill more each year, on the presumption that their cost base (principally their people) will always be rising, so they need to bill more to maintain their margins. But what we are starting to see is law firms which are thinking like consumer corporations, which focus on delivering to the market better products at lower prices – still of course preserving margins.
The long-term game here is potentially very exciting. Let’s be honest, and recognise that the vast majority of the world’s businesses – and people – avoid using lawyers and the law whenever they possibly can, because of the expense. Automation and artificial intelligence offer the chance to expand the market for legal services in the future to an extent currently undreamed-of. And part of this of course is that when the cost of doing business becomes cheaper, more business gets done. The opportunity is a market of many more client transactions, even in economic environments with zero growth.
Who will take advantage of that – new providers, or some of the established law firms too? A partner of a medium-sized firm said to me last week that if a firm doesn’t have at least one and preferably at least two of its lead partners charged with looking at new technology and what the firm’s strategy for it should be, it is gambling with the future of the firm. That’s worth reflecting on, I believe. We tend to think that if we are risk-adverse, we stick with our established business model. This lawyer is one of many suggesting that now, the best way to be risk-adverse is to begin to look at adopting new business models.
Where should we begin? I suggest a good place to start is by getting a very clear view of the legal services which are becoming automated in at least some jurisdictions, and once you have that, try – and this is harder – to get a good sense of the speed with which they are likely to affect your jurisdiction, and your firm. One thing which is already clear is that it is the most routine parts of legal work, and the types of legal work which are transacted most often, which the new providers are focusing on first: property conveyancing is the most obvious example. As these changes arrive in a jurisdiction, the higher the share of a firm’s income comes from these types of work, the quicker it will need to adapt. The simplest way to adapt is to sign up one or more of the new providers as suppliers to the firm.
That way the firm learns best about the market potential for these services within its own client base, without losing the clients. It brings the clients greater value; and it does so without the firm making high or risky levels of IT investment. A lawyer receiving new work from a client in this structure then begins by asking “What is the most efficient way of undertaking each element of this work?”, and working out which links in the supply chain should handle it, rather than simply giving it to his or her immediate team in the old way.
The opposite of this is also true. The higher the share of a firm’s income comes from non-routine, difficult to automate, work, the better protected the firm is, at least in the medium-term, from the threat from the new suppliers. Lawyers can feel safer when they work in highly specialised areas of law subject to rapid change, or where human relationships are critical, or where oral arguments in court are central. Safer, but not immune. While machines cannot replace oral advocacy, for example, they can and already are reducing the number of disputes likely to reach court, through online dispute resolution technologies, and the emerging software techniques of dispute containment and avoidance.
But many of these most experienced and specialised lawyers see the opportunity more than the threat. I see a strong view emerging in the profession in the more tech-driven jurisdictions, that it is the leading lawyers in the jurisdiction (the ones who most easily might choose not to alter their way of working), who in fact have the biggest opportunity for gain. They can use technology to replace almost all of the operational oversight part of their work, and consequently have the time to bring their deep experience and commercial judgement to more deals, and to more clients, for the parts where the highest premiums can be charged.
Perhaps the simplest expression of this new way of looking at legal work is to say: divide your business, in your mind, into an advisory business, and a process business. And think what it means to run the two businesses in quite separate ways, with different capital requirements, IT development, competition, pricing strategies and all the rest.
To encourage you, a recent large survey of law firms in the US showed a clear correlation between those firms that have reformed in the areas of pricing, staffing and efficiency and those that are enjoying greater economic success.
One of the most interesting and as yet unanswered questions about this change is whether legal markets will split even further between large firms and smaller ones. Some say that the more things are automated, the higher will be the market share of the large firms, as in most sectors. But others argue that in the future, smaller, more specialist law firms will be able to draw on high-tech legal support services from large, even global cloud-based providers, and this will enable them to compete very effectively for niche parts of client work, in a way they now cannot, because of the limitations imposed by having to fund their own IT infrastructure and cyber security from their own capital.
It remains early days for this new environment, and we all have much to learn. And so I come full circle to the IBA, and what we can offer you. On this subject of disruptive innovation, we offer you access to content from leading thinkers on the issue, and, much more valuable in my opinion, access to a network of many thousands of law firm partners, almost all wrestling with and testing out potential solutions to different pieces of this jigsaw, and all keen to engage in dialogue about what the best solutions might be.
So I’ve used this issue as just one example, of the hundreds of issues which affect the law and its many specialisms, which we talk, write and communicate about at the IBA. I warmly encourage you to bring your own voice, your own experience, and your own questions, as often as you can, to this dialogue, which we like to call “the global voice of the legal profession”. You are all so very much welcome.
Thank you very much.