by Chris Thomson
“It is not the strongest of the species that survive, nor the most intelligent, but the one most responsive to change.” – Charles Darwin
In recent times, many have seen a gap in the legal market in which commoditised work carries bespoke prices, which thanks to the advancement of both technology and the industry itself, can be taken on at a much lower rate and be far more automised than was previously possible. Approaches such as new model firms, legal process outsourcing and online dispute resolution are now cutting into work previously being outsourced to traditional law firms as these innovators try to transform legal services, along with a few other options, by embracing what has come to be collectively known as ‘NewLaw’.
Two approaches to this embracing, highlighted later in this Special Report, are firms set up specifically targeted at this new segment of the market such as Axiom and traditional law firms’ newly-founded departments such as Eversheds Agile. Each has its own merits – one being something deliberately dedicated to helping clients with commoditisable issues, the other benefitting from the fact that should aspects of the work require a bespoke angle, this work can be referred to someone in the same institution.
Both are answers to what Richard Susskind in his 2008 book ‘The end of lawyers?’ stated as the two main objectives of an in-house department, namely “ …for in-house departments to be vastly more efficient in their deployment of the traditional combination of internal labour and external law firms” and “…to ensure that work is undertaken, where appropriate, by less costly suppliers of legal services, such as legal process outsourcers and paralegals”.
In his book published in 2013, Susskind, predicted that over the subsequent two decades, “Entirely new ways of delivering legal services will emerge, new providers will enter the market, and the workings of our courts will be transformed”, going on to say that “a whole set of fresh opportunities will present themselves to entrepreneurial and creative young lawyers”. New model firms may be at the forefront to take advantage of these opportunities, though as was pointed out by Nick Seddon, Partner at Beaton Capital which specialises in advising professional service firms on strategy, mergers, acquisitions and exits, “The big four accountants are also entering the law with a different model as are certain firms that have chosen to follow new business models such as multi-disciplinary partnerships or listed law firms”.
Many clients have become disillusioned with the current costly methods, and alternative fee arrangements are only seen as viable to few, leading to Susskind believing that “it is now necessary to move from pricing differently to working differently”.
Interestingly, statistics from our In-House Community show that it is in-house lawyers in emerging markets that are more open to using new model firms, with the Philippines, Thailand and Indonesia at the forefront, having an average of 84.5 percent make this claim.
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On the other end of the spectrum, counsel in Singapore, China and Hong Kong, jurisdictions where legal departments are more established, were far less inclined to refer work to new model firms, with only 53.4 percent on average having used or being willing to use new model firms.
One of the aforementioned Hong Kong counsel, over half of whom are still open to new model firms – Stan Lui, Head of Legal & Compliance for Hilti – said “My feeling is that law firms can be creative and ‘think outside-the-box’, but only minimally because they are still somewhat chained by a deep sense of pride in traditions that inhibit change; whereas new model firms could embrace a ‘push-the-envelope’ mentality and be cheered upon”. He went on to say that though he doesn’t currently use any new model firms, he’s “seriously considering” the option.
Giving an in-house perpective from Malaysia, where 77.6 percent of our community either has used or would use a new model firm, members of the Sime Darby Group legal team, led by In-House Community Thought Leader Choo Suit Mae, said they too are yet to use new model firms, due to the type of cases they have come across rather than a lack of interest.
The team also noted that the three major drawbacks of law firms are the technology they employ (and the fact that the technology used by firms is expensive and allows for little or no customisation), the absence of non-legal experts in a range of practice areas, and cost. Elaborating on their second point, Mae stated that “In some practice areas such as data protection and construction matters, technical experts are required to work together with lawyers to provide comprehensive advice to their client. Since such expertise are not found in law firms, they will need to hire outside experts, which translates into more cost.”
On how these three areas can be capitalised on, Sime Darby’s representatives mentioned that new model firms are able to hire in-house experts and provide clients with comprehensive services. Giving examples, they cited that in addition to identifying the data protection requirements, a data protection consultant may be able to advise on the actual process/procedures/physical and/or IT system security and may be able to do an audit on the client’s processes, procedures and systems to confirm compliance.
Referencing technology, Mae remarked “New model firms are focussed on specific areas of speciality and are therefore able to invest in developing their own technology, and the systems processes required to perform the services for their clients. This proprietary system will significantly reduce the time required to perform certain tasks and improve efficiency.”
Regarding cost, new model firms stand to benefit from lower overheads (i.e. no need for spacious offices and due to use of technology/cloud services, employees are able to work from home), fewer employees (less need for administrative personnel) and faster response time from the automation in work processes or use of proprietary systems, the group claims.
On new model firms, Seddon points out that “they have a different human resource model, a different sales model and a different charging model. They embrace disruptive technology to drive new ways of delivery rather than just to improve efficiency of the old delivery methods. They are capitalising on the fact that BigLaw (traditional law firms) has been operating the same model for not far off a century and clients are demanding change.”
And, as has already and unavoidably been referenced, this change being demanded is largely due to cost. Budgetary constraints have, since the 2008 financial crisis, been on the minds and lips of legal professionals and buyers of legal services. In-house lawyers who foresee an increase in work have to carefully decide whether the best response to this anticipation is to hire additional in-house aid or increase the level of work that is outsourced.
It cannot be denied that technology is becoming more integrated at all levels of daily life, as well as more impressive year-on-year. And this phenomenon goes beyond the sharing of thoughts and videos and can and does incorporate acquisition of legal advice. Some, in fact, refer to the integration of technology with thought-processing capability in everyday life as the fourth industrial revolution, after steam, mass production and electronics.
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It is true that new model firms are taking advantage of technology more than their traditional counterparts, but it is also true that there are online services which take that a step further such as the online dispute resolution service integrated into eBay as well as numerous legal process outsourcing options, both of which cater to more commoditised work. If firms continue to take on bespoke work and these options become favourable for commoditised work, new model firms run the risk of being squeezed out of the market by being favourable in many ways to law firms (which can be seen as the industry’s CDs), but falling short of legal process outsourcing options (law’s mp3s) and instead being remembered (briefly) as the MiniDisc (now known as music’s forgotten format) of the legal industry.
Seddon, however, believes that there is, and will continue to be, a market for this “middle ground”, stating that NewLaw firms will be able to take on the “run the company work” and “will dominate commodity work”. He also pointed out that “BigLaw is already reacting to NewLaw by on-shoring and off-shoring significant back office capacity to lower cost centres or having new service delivery operations to separate businesses”. So, some traditional law firms aren’t as stuck in their ways as it may seem.
New industry players, therefore, have to compete with the tried and tested traditional law firm model and the solutions these organisations are now forming, as well as each other. Legal process outsourcing is often done in jurisdictions where living costs are low, similar to the model numerous companies have taken on in order to fill their call centres, and with ASEAN being known for low labour and living costs as well as relatively high standards of English, these places may be set to prosper, though companies such as Axiom have enjoyed success in America and have recently integrated into Asia with their Hong Kong office to experience a similar reception.
In the view of Mae and her colleagues, “New model firms are differentiating themselves by unbundling the services provided by traditional law firms, focussing on specific areas of expertise and providing legal and complimentary non-legal services (for example IT security experts to advise on IT security for personal data protection) and employing proprietary technology, processes and in some cases providing online legal services (for example provision of online databases for customisable legal documentation).
“However, it is likely that traditional legal firms will eventually be catching up and adopting some of the processes set up by the new model firms. Therefore, they will need to be ahead of the curve and continuously innovate to differentiate themselves.” This is already beginning to occur in cases such as Eversheds Law Firm’s service Eversheds Agile.
When asked how new model firms can and do differentiate themselves from traditional firms, Lui explained that if we see the in-house lawyer as Batman (though he was quick to point out that he himself doesn’t suffer from a superhero complex), the aid they use can either be similar to that of Robin – “Boy Wonder, or as is often the case with law firms Boy Wander” – or that of Alfred, and that he would always prefer to have an Alfred – one who will buttle and not just serve – in his corner.
Lui also chimed in on the law firm model that incorporates a ‘new model-type’ approach, stating that it was a law firm’s inclination that would be the determining factor as “The core of the issue is not if law firms need to change, but if some of them want to”.
From what has been said by those at Sime Darby and backed up by our in-house surveys, many law firms may have to change, as though they say they will likely approach the go-to partners for their expert advice and strategic thinking, when it comes to M&As and restructuring, they can foresee new initiatives overtaking firms for certain areas of law and tasks. For law firms to continue to compete with both new models and the temptation to expand the in-house team, the Sime Darby team feel they should adopt a “two-entity legal service – one entity as a traditional law firm owned and managed by lawyers and the other, a business management consulting firm supporting the law firms in business and technology, whose employees are experts in their specific areas”, an approach that is gradually becoming more popular.
According to Seddon, NewLaw is not a simple response to ‘more for less’. Instead, he says, “I think there has been a frustration building within the client community about the way legal advice is provided at the same time as generations x and y were looking for different things from their legal careers. NewLaw addresses both issues in one fell swoop.”
As was stated in Kenny Tung’s two-part article entitled ‘The legal profession’s Kodak moment?’ , both of which appeared in Asian-mena Counsel earlier this year, Kodak’s failure to keep up with the times, particularly in terms of technology, led to its downfall. In these articles, Tung suggested that the legal profession too will see shift – not that photography’s popularity decreased, and therefore not that the necessity for legal services will either – but that it should integrate with what’s available or lose out to someone that will.
What can be seen as true is that in many cases in many industries, even giants in their own rights have fallen due to their own hubris amongst other factors, so to believe that the legal industry is somehow immune to this – that its empire cannot fall – would only be done by those who forget the lessons from past empires. As George Santayana famously said, “Those who cannot remember the past are condemned to repeat it”.
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