The Time for Innovation in the Legal Sector … Was Yesterday

For the last decade, the phrase “digital disruption” has loomed like a specter over many industries, but the legal world seemed to mostly escape technical innovation.

It’s not as though lawyers are still using paper notepads and quill pens. They have deployed the Microsoft software suite and other IT software just like every other sector. But aside from a handful of intriguing apps, the sector hasn’t really experienced the “digital disruption” that sowed chaos through the rest of the economy.

Lawyers are quietly happy about dodging the disruption. After all, no one enjoys being made redundant, especially by a machine. But there’s always some satisfaction in deploying a digital tool that makes the workday faster and boosts productivity.

The sector can hide, but changes are coming. Imminent technological advances will bring benefits to clients in the form of lower prices and greater ease of use of legal services, along with increased access to justice. But they may also herald tough times for firms as they square up to the challenge.

According to the Altman Weil 2020 Law Firms in Transition survey, 62% of law firms now include innovation initiatives in their strategic plan while 60% have created special projects to test ideas.

According to the Altman Weil 2020 Law Firms in Transition survey, 62% of law firms now include innovation initiatives in their strategic plan while 60% have created special projects to test ideas.

On the other hand, 18% of firms had partnered with a technology company to build new digital solutions and only 18% had appointed an Innovation Director or assigned a specific person to the task of encouraging new ideas.

So, while the clouds of “digital disruption” gather, these statistics suggest many legal firms are only rolling out the whiteboard to rethink their internal processes, rather than encouraging a real innovation culture. There’s nothing “digital” about hiring a new secretary for the latest partner.

The Altman Weil survey also showed that while many managing partners agree in theory on the need to improve practice efficiencies, only 22% of firms have followed through with changing their processes.

In other words, even the whiteboard was a bit of a distraction.

Clear Divide

Why is there a disconnect between theory and practice in legal innovation? The answer is partly cost since in-house legal teams are often seen as revenue negative by their company. But an important barrier may be those legal processes themselves.

Consultant with RegulAItion, Clinton Swan said there is a clear divide between firms that are “innovating by press release” and those which have a clear strategy, are implementing that strategy and actively backing it up with structural investment and resourcing.

“The year-on-year development progress for this latter group is evident. My in-market conversations suggest this divide remains, though more firms are moving to a strategic approach,” Swan said.

Arcadis Asia general counsel Carl Watson said instilling a culture of innovation will be crucial after the Covid-19 pandemic. The agility of the post-pandemic workplace means that innovating how lawyers work, where they work and who they work for will make it necessary for legal professionals to embrace innovation.

DNV head of group legal for the Middle East and Asia Pacific Sigrid Wettwer understands the reticence of law firms to disrupt themselves. Law firms are cautious organizations that don’t like to court unnecessary risk.

But even if they wanted to disrupt themselves, she said in-house lawyers still face push-back from management teams that often see new ideas as a kind of failure.

Wettwer said innovation always involves risk and potential failure and the appetite for those ingredients in a culture of conservative excellence among law firms can be extremely low. It takes a brave CEO and the empowerment of the whole team to break free of that.

“A better mindset is to think of these changes as opportunities to learn. For the sake of speed, we should aim a little less at making innovation perfect straight away and allow ourselves to adjust in accordance with the learnings we collect along the way.”

“We should not be afraid to question the status quo. Open, cross-functional discussions will not only foster mutual understanding, but lead to robust results,” Wettwer said.

Curious Ambivalence

UMP Healthcare general counsel Adam Au said working with external and internal counsel he has noticed many lawyers with a curious ambivalence toward innovation.

“They tout their firm’s ‘cutting-edge technology’ but do not provide the support to demonstrate its deployment. I care deeply if our external counsel understands our business and the challenges we face from a technology perspective,” he said.

Au added that an entire cohort of competitors – ranging from clients, entrepreneurs and technologists – is preparing to disrupt the legal sector’s outdated business model, even if they haven’t quite cracked the riddles yet.

“The billable hours model, for instance, is in crucial need of an overhaul. Despite its perceived efficacy in translating casework into billable price points, the billable hours method is outdated.”

In his experience, removing billable hours tends to increase innovation, not stymie it. And being efficient while maintaining quality is a legitimate form of innovation.

“If billable hours – along with other dated processes – maintain prominence in the sector, traditional firms can expect to rank low on interest. The firms and other legal enterprises that adopt innovation will outpace their competition in attracting attention,” Au said.

Another pleasant fiction, he added, is the idea that bespoke client solutions cannot be replicated by computers. To the contrary, modern technology has largely “debunked the myth that all work performed by lawyers is bespoke,” Au said.

“The exceptionalism enjoyed by lawyers is now being replaced by an interdisciplinary approach to problem solving. As such, lawyers must prove their value. If a company can hire non-lawyers to perform legal tasks, then why would it hire someone who is a bit of a one-trick pony?” Au asked.

FedEx Express managing director legal Shogo Osaka said legal innovation has so far been about crafting an innovative solution for clients, not a disruptive mindset.

“We need to change our mindset to the new way of innovation, to transform our in-house legal service to become more. Such innovation can be achieved just by streamlining processes, or revisions of policies and procedures.”

And the team can be encouraged to come along for the ride. For example, Osaka’s legal team reworked its processes last year in the middle of the pandemic. Although he took the lead at the beginning, after a few quick successes the team was inspired to offer more ideas. Today, their monthly process update is the most popular agenda item for the team’s regular meeting.

“The in-house legal team’s strategic advice and practical solutions have become indispensable because, while its budget and the headcount may not increase, the risks certainly do,” Osaka said.

Waves Of Change

Yet the obvious benefits of adopting force-multiplier technologies – like artificial intelligence or data analysis tools – isn’t immediately obvious.

UMP Healthcare’s Adam Au said the generational divide is a major factor. Decision makers in many companies are products of earlier generations, reared in a pre-tech era and with little faith in embracing changes.

“In a traditional corporate setting, the in-house legal department is seen as a cost center. All companies are concerned about their bottom line especially after the pandemic. That often leaves legal departments adopting technology à la carte rather than as part of a strategy.

“Yet, we do witness new waves of changes. Getting management buy-in used to be slow work but has been accelerated by the pandemic. Many companies realize the status quo is a no-go if it means leaving technology on the sideline,” Au said.

DNV’s Sigrid Wettwer said the generational divide is important to keep in mind because legal technology will inevitably require people to change their routines and habits. And there’s nothing people hate more than change, especially after decades in the profession.

“While the aim is to improve performance in the long run, colleagues must build new habits in the short term. For this reason, technology that is intuitive to use with a low barrier to entry should be prioritized. A short-term loss of efficiency is necessary during the implementation phase to achieve long term gains,” she said.

Since even the best technology still requires input from humans, a bizarre reaction can arise when trying to introduce technology: if people feel their job or status is threatened by new technology, they will not be keen to use it, or worse, work to sabotage it.

“This is why it is important to identify the stakeholders, communicate with them and demonstrate the need for change and the threats that may arrive without it. A certain degree of change management is necessary to overcome resistance and get all players on board,” Wettwer said.

D2 Legal Technology legal-change consultant Christy CL Ng added that firms must have the right data governance in place before implementing a technology product.

“This can be a time-consuming process, given the poor state of most data, leaving many legal teams at a loss and often incorrectly blaming the technology. Legal technology with bad processes is simply throwing money away with little business value or benefit,” she said.

Doing More With Less?

The human/machine partnership is already a reality and the connection will get tighter. The future will no doubt also require lawyers to become managers of the robolawyer technologies.

“Technology is increasingly being recognized as a tool to enhance business outcomes, rather than replacing lawyers. The impetus to integrate technology with traditional legal practice is becoming stronger each day,” Ng said.

She said being a lawyer is no longer only about coming up with the correct legal position. Rather, future lawyers must optimize business with better management of contractual terms, delivery of legal analysis and solving problems by recognizing the legal issues.

“All of these are best done with technology. There is a real need for in-house teams to work with legal data experts to develop standards for structuring data and performance benchmarks,” Ng said.

Fnatic general counsel Andrew Cooke said sometimes the barrier to adopting legal technology could be that people simply misunderstand how to use it. He said technology should be seen as a tool, a way to eliminate process or enhance existing processes – like a driver that lets a golfer hit the ball 30 meters further with the same swing.

“In this regard, I have a real problem with the phrase ‘do more with less’ – which is wrong on its face because you do less with less. It also implies that seeking efficiency gains is somehow a burden.

“Our first challenge is always to make workflow as efficient as possible before applying technology – rather than using it as a magic wand to turn a poor-quality workflow into a good one. Every department in a business has an obligation to continually improve its workflow,” Cooke said.

Lying over the top of the human barriers sits the larger machine of government and international regulations about how data can be used along with issues about data privacy. Individual countries in the Asia Pacific are also at varying stages of adopting technology as well, said RegulAItion’s Clinton Swan.

“Regulatory regimes play a large part in the wider legal technology uptake. Some markets are still hesitant while others are actively pushing ahead. Singapore’s government-backed programs come to mind as an example of the latter.

“Also, people will always want to see someone else in the market use a technology first before they jump in,” Swan said.

Ultimately, Arcadis Asia’s Carl Watson said innovation must start in-house and it is crucial for all legal teams to look at what processes or systems can be standardized, automated or digitalized.

“We need to liberate mental capacity up the value chain to tackle strategic and complex legal tasks, leaving repetitive and non-value adding tasks to be automated by machines where possible,” Watson said.

“In-house innovation should involve wisely leveraging the finite talent you already have, building up that talent and, where possible, automating everything to drive efficiency.”

Author: Nathan Smith

	Sigrid Wettwer DNV head of group legal for the Middle East and Asia Pacific
	Adam Au UMP Healthcare general counsel
	Andrew Cooke Fnatic general counsel
	Shogo Osaka FedEx Express managing director legal
	Clinton Swan RegulAItion consultant

*This article is the IHC Magazine’s off-shore update for July 2021 issue. Click here to read the full magazine