"Standing still is the fastest way of moving backwards in a rapidly changing world"

So said Hollywood great, Lauren Bacall.  A view that seems particularly pertinent in what can only be described as a period of unprecedented change in the legal services market. While the last 50 years has seen plenty of change, much of that has been about growth - often through domestic or international merger.  What makes the current period of change unprecedented is the fact that what is being questioned and challenged is the very nature of legal services.

Writing in Forbes Magazine in March this year, Marc Cohen, CEO of Legal Mosaic, a legal business consulting company that focuses on improving legal delivery, suggests – rather scathingly – that “Law has long been a hierarchical, pedigree-enamored, insular profession” which “still views the industry through its own lens and defines it in its own terms and by its own standards, not from the perspective of clients and society.”

As Cohen puts it, “It’s a new ballgame now. Legal services are whatever clients need to solve complex business challenges.”

This is a view shared by Dan Reed, CEO of New Law heavyweight, UnitedLex, who suggested in a recent interview in The Lawyer that in order “to tackle their sophisticated and highest-value business challenges, clients need…scale, substantial capital, and integrated multidisciplinary expertise, all supported by a seamless global infrastructure. Clients want a provider that can identify and manage problems before they form; use data, artificial intelligence, and other technologies to compress delivery time and predict outcomes; and expand “legal” services’ impact beyond the traditional legal function to add value to all parts of the business units.”

There is little doubt that, in the UK, the liberalisation of the market that followed the Legal Services Act 2007 and the Law Society’s ability to grant ABS licences in 2012 has helped create this “new ballpark” but it is technology and digital transformation that has been the real game changer.

The legal technology guru, Richard Susskind, in his book “Tomorrow’s Lawyer” published in 2013, suggested the legal market would experience more change in the next 20 years than it has in the last two centuries and in the preface to the 2nd edition published in 2017 he summarises many of the changes that have already started to take place.

“Many major law firms have since set up low-cost service centres to undertake routine legal work; the big four accounting firms have rapidly grown their global legal capabilities; there has been an upsurge of legal-tech start-ups now well over 1,000 worldwide; the idea of artificial Intelligence (AI) in law has captured the imagination of innovators across the profession, from market leading law firms to law student developers [and] in England & Wales, in our liberalized legal regime, innumerable ‘alternative business structures’ have been launched (there are now over 500).”

Certainly there can be little doubt of the big four accountancy practices’ renewed appetite for a slice of the legal services pie.  PwC employs 3,600 lawyers in 98 countries; EY has followed up its acquisition of Riverview Law with the acquisition of Thomson Reuters legal services business; KPMG have just contentiously raided Fidal, France’s largest law firm, to acquire a total of 145 lawyers including 26 partners; and Deloitte, who only acquired its ABS licence last year, has recruited A&O banking partner, Michael Castle, as managing partner with a stated aim to ‘fill the digital gap’ in the legal sector, combining legal advice with legal managed services, technology and consultancy.

In an article in the FT from last November entitled “Big Four circle the legal profession”, Jonathan Derbyshire quotes Susskind as saying “What’s interesting about the Big Four is their commitment to new technology. They come to a market where they have no legacy to protect, so they are able to start with a blank sheet of paper. It seems to me self-evident that the Big Four will be hoping to emerge as market leaders in legal technology.”

Only time will tell the degree to which this perceived competitive advantage in legal technology will help the Big Four reshape the legal services market but I think Cohen's suggestion that “Legal departments and law firms are neither prepared nor equipped to meet these urgent and formidable challenges” is misplaced.

Law firms hold the trump cards in terms of know-how and the number of law firms that now employ a dedicated innovation resource bears witness to their engagement with legal tech as does the growing number of firms that have set up tech incubators—with A&O and Slaughter and May arguably leading the way.  Moreover, most law firms are also already rethinking what clients want and how that can be delivered.

The challenge for those law firms looking to keep pace with the Big Four and the New Law businesses is having sufficient capital for investment.  UnitedLex has recently received an eye-watering $500m investment from CVC Capital Partners and Axiom is lining up to float.  While some law firms have “cash at the bank” – notably Clifford Chance who, as the Lawyer recently reported have £214m – others may need to follow the example of recent main market entrant, DWF, who raised £95m through its recent IPO.

DWF, who has a number of aligned businesses under the umbrella of its Connected Services Division, stated in The Prospectus the firm’s intention to further invest in Connected Services.  Like Cohen, Reed and the Big Four, DWF sees that “the ability of legal service providers to be able to offer a wide range of integrated and related services can be a key differentiator.”

DLA is another firm who have recognised the need for what it calls “Radical Change” and has recently set up a Change Council that includes Susskind to assist with stage two of its change strategy.

I do think however that not all “future law” requires the “scale, substantial capital, and integrated multidisciplinary expertise [and] seamless global infrastructure” referenced by Reed.  Schillings is a perfect case in point.  Having been granted an ABS licence in 2013 the firm restructured and is now an integrated legal, risk management, IT security and investigation business.  Boutique but at the top of its game.  For many firms it may simply be a case of identifying their core strengths, their differentiator and making themselves an indispensable trusted adviser but the legal services market is changing and firms need to adapt.

As Franklin D Roosevelt once said, “There are many ways of going forward, but only one way of standing still” and the firms that are standing still are conspicuous by their inertia.

Iain has more than 17 years of legal recruitment experience, and previously trained and worked as a lawyer. He has a real in-depth understanding of the legal market and recruits for our London and International team.

 

Iain Millard

iainmillard@chadwicknott.co.uk

T: 0203 096 4547

M: 0776 695 1998

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