The Changing Face of Legal Industry
Globally, the legal industry is experiencing an era of transformation. The changes are unmistakable and diverse. Paperwork and data management- long practiced by lawyers- is being replaced by software solutions; trans-national boundaries are legally shrinking; economic forces are re-defining law practices; innovative in-house law departments are driving significant value creation; consumer trends have begun to dominate the legal landscape; clients are playing a larger role in managing their legal portfolios, to name a few. Additionally, new canters of change in the legal industry have emerged: millennial lawyers are changing the work culture; technologists are introducing artificial intelligence; and General Counsels are acting as entrepreneurs and not just as lawyers. These and other radical changes will be more pronounced in the years to come. The transformation of the industry, experts point out, is exerting pressure on all the stakeholders- lawyers, law firms, in-house legal teams –to swiftly respond to the change(s).
The legal services sector has experienced continuous growth because of the rise in international trade. Technological advancements are increasingly affecting every aspect of business, including the business of law. Keeping pace with this technology and the demands of clients in an increasingly complex environment requires a different approach; one that recognizes today’s realities. Globalization is here to stay and technology will continue to change the way that lawyers work. With increased competition, the legal industry world- wide is innovating to respond to unfulfilled legal needs and enhance the delivery of legal services to clients in a bid to promote a responsive and modern legal profession that can better underpin the overall economic (and social) well-being.
Although globalization and complex regulations have resulted in generation of more legal work, there is also stiff competition from several quarters. Legal services are being delivered not just by private practice lawyers/law firms, but also consultancies, especially those services which do not require legal advice. Many process driven legal services are offered by consultancies without advising on the law. Can legal consultancies displace lawyers as far as the market for commoditized work is concerned? Possibly, since globally advisory firms are increasingly rendering advisory related services that were once the exclusive domain of law firms, as seen in tax centric corporate projects which are conceptualized and executed by specialized accounting firms and their affiliate/associate law firms. It is likely that in the future the traditional private practice law firms will focus almost exclusively on specialized or complex work.
Clearly, these are challenging times for the legal sector. Some are embracing the change, others are concerned about losing ground, and still others are concerned that the shift from the “practice of law” to the “business of law” might result in loss of the profession’s traditional and cultural mores. It is, however, clear that lawyers with limited or no business sense will soon find themselves in the minority. In the coming years, a career in the legal industry would require an understanding of technology and business besides the law.
Technology Revolution and Law
The relationship between law and technology is intertwined. The future of the legal industry cannot be analyzed without considering the role that technology will play to shape and enhance that future. Similarly, any discussion on technology is incomplete without considering the legal framework in which it operates. Not surprisingly, technological advancement and innovation have emerged as the two most crucial trends driving change in the legal sector globally. The emergence of new technologies in legal industry mirrors what is happening in the wider business economy —it has brought about exciting change and large-scale consumer and business benefit as also a modern work culture. While skilled lawyers (and law firms) cannot be replaced by algorithms and automation; the agile, mobile, globally connected clients expect and demand more from their lawyers, viz provision of legal services seamlessly in a globalized world with a fixed fee and transparency. Being wary of or ignoring the increasing pace of technology is no longer an option for legal professionals who are keen to increase their legal know-how, efficiency and quality of their services.
The spread of the Internet and smartphone technology led to access to legal information on fingertips, legal research being done electronically, and smartphone apps addressing routine legal queries and generating legal documents. A new generation of online legal solutions and software changed how lawyers/firms/in-house legal teams research, draft, manage documents, bill, communicate, saving both time and cost. Since many of the technologies became more accessible over time, opportunities for lawyers to take their advantage also increased. This especially helped lawyers, small firms (and legal departments) not having the same resources as available to larger set-ups.
While technology gradually permeated the practice of law, it has now begun to impact the delivery of legal services. Legal services which depend on experience and judgement cannot be replaced by technology, but everything else is “open to change”. Legal research and due diligence can be outsourced and automated through advanced legal research tools harnessing Artificial Intelligence (“AI”); contractual clauses are identified, analyzed, extracted for a range of transaction requirements with a software which uses AI; document production and proof-reading is efficiently done through document and contract automation software; basic commoditized services (registrations for instance) can be rendered electronically; simple contracts are delivered by smart contract technology (a computerized transaction protocol that executes the terms of a contract); apps are increasing document collaboration and simplifying execution processes. Legal research- an important and incredibly time- consuming task for lawyers- has undergone a visible transition from the days of legal journals/reporters to CDs/DVD-ROMs to database access on static software (requiring online updates through manual process) to delegation of research tasks and summarization processes to automatic (abstract summarization) software programs, with an accuracy rate of 90%!
The significance of all these and many other evolving technologies lies in attributing greater value to the expertise of lawyers by decreasing costs and increasing convenience. Experts believe that going forward, the profession will be “less fixated on forms and more passionate about knowledge management”. The focus will be on designing legal tech systems, working across multiple disciplines/fields, and creating legal processes for clients rather than ‘memorizing the law’. Legal innovation through use of technology is set to be a game changer for rendering legal services. But even the most innovative systems are only as good as the people who use them. Businesses now need tech-savvy lawyers who can leverage maximum functionality out of the new technologies.
A Cautionary Note
New technologies bring exciting opportunities as well as challenges. The legal industry is primarily built on people and this position underpins the successful deployment of any new technology, point out experts. Further, both clients and lawyers have high expectations of what technology can deliver and this expectation is often judged against their experience delivered by large technology firms. Lastly, there are ethical considerations too: “disruptive innovation” cannot be allowed to become a code word for breaking the law, with exploitation camouflaged by technology. These and other related issues arising from adoption of new technologies need to be carefully considered. Since lawyers tend to be mindful of ethical considerations, they need to work closely with technologists to tackle the issues thereof.
In-house Legal Teams: Driving Innovation
A look at the current size and structure of most legal departments, shows their substantial growth over the past two decades. Despite working in a new climate of budgetary constraints, there is a compelling evidence that legal departments are facilitating greater integration of “law” into broader “business” solutions through cross functional teams and greater use of technology. Particularly, in technology-driven sectors like information technology software & services, e-commerce businesses, financial services etc, technology has had a visible impact on in-house legal teams. These industries are feeling the pressure more intensely than others since technology is drastically impacting their businesses. The in-house legal team’s work becomes even more complex with the operations of companies spread over vastly differing legal systems, governments and languages. Naturally, in-house lawyers need to and are mastering many tools as their employers seek know-how across several sectors.
For in-house legal teams, technology investment has emerged as a key priority to improve efficiency and the impact of their work by enabling them to focus on work of strategic importance and, increasingly, on providing business advice. Two legal technology platforms which are offering immense benefits to in-house departments are worth noting—legal research powered by Artificial Intelligence; and Cloud Computing. As businesses scramble to cut their legal costs, in-house departments are finding innovative ways of reducing the amount of time they spend on research. A platform that relies on Artificial Intelligence and analytical software is able to sift through a billion text documents in seconds to answer lawyers’ queries. It also learns how to improve over time based on past performance, revolutionizing the way in which legal departments approach research. Cloud computing (a relatively untested tool for law firms which are reluctant in adopting it due to security concerns like threat of hackers and cyber criminals to client data) is being used by in-house lawyers given the benefits that cloud computing can bring, including disaster recovery, business continuity, remote working, flexibility, and cost savings. The security concerns for cloud-based legal applications/technologies are addressed by the security accreditations attached to them and are, therefore, as safe as anything any IT department can come up with in-house.
While many law firms are still planning for their roles to be redefined by technology, that transition has begun in their clients’ in-house legal teams. In times to come, in-house teams will be expected to handle newer challenges posed by technologies such as bitcoin, cyber security and data protection. Artificial intelligence (AI) and automation is poised to become an important part of the legal team’s arsenal. However, these technologies can be optimally used only if the companies have in-house teams with a culture to embrace the change. For effectively combining technology and law, all the concerned stakeholders including in-house legal teams, law firms, technology suppliers and alternative legal services providers, will need to find new and meaningful ways of collaborating.
Legal Innovation: Global Perspective
A ‘paradigmatic industry shift’ is said to occur when change takes hold in the lower end of a market introducing new customers into the marketplace by creating ease of access, lower cost, and greater efficiency, informally referred to as “disruptive innovation”- a term famously coined by Professor Christensen of Harvard Business School. Studies indicate that this is precisely what is happening in the retail segment of the legal industry across the globe. Although precedent continues to be guiding principle in the practice of law, innovation is gradually transforming the “models, methods, and the players” in the legal industry world-wide. Since legal innovation lies in how to adopt technologies and adapt to them, the new mantra is to reduce the “armies of lawyers” and take more advantage of legal technologies and other innovations to be more efficient. Increasingly, young lawyers are being encouraged to use their technology skills to be legal ‘engineers’ and innovate within the legal services space. Start-ups (like on-demand paralegal resource for law firms) using new technology to disrupt (and improve) the established way of doing business, are mushrooming.
Law firms too have begun to look at imbibing efficiency into their businesses in a bid to change the culture of the firms and the way their lawyers think about the work and clients. In the UK, the legal profession is said to have reached a tipping point. Lawyers have taken to developing their own technology (such as Artificial Intelligence) with the realization that becoming efficient does not mean “commoditising their services”. Despite unpredictable market conditions, UK law firms seem to be thriving. According to the Law Society Gazette, for the top four UK-founded Magic Circle firms, there has been an average increase in turnover by 3.9 per cent, Notably, some of this success is being attributed to adoption of technology by lawyers. In US, with the traditional law firm business model coming under stress, the legal industry is responding with developing knowledge management systems and finding ways to outline workflows and processes. Responding to the emerging future of work in which lawyers have more flexibility and autonomy, some US law firms have creatively organized freelance attorneys and equipped them with smart technology. This is helping the firms in offering quality services to Fortune 500 companies at half the cost, and also helping their law practices grow at a faster pace. As corporate clients push for improved efficiency and quicker delivery of legal services, innovation in the US legal industry is perhaps greater now than at any other time in the industry’s history. In Australia, law firms are re-thinking how work is done and identifying the opportunities for change. Some firms have begun to foster a culture of innovation by creating development programs to teach their lawyers the basics of computer coding, doing away with organizational departments which separate professional and technical staff, introducing dedicated multi-disciplinary ‘innovation groups’ to work alongside the firm’s lawyers to drive innovation. Innovation in the continental European (primarily in France, Italy and Germany) legal market initially seemed to lag in relation to the UK, US, and Australia. Reasons are two-fold. First, the European market is multilingual and multi-jurisdictional, which makes it sub-scale for innovation. Second, and perhaps the bigger reason is conservatism-resistance (to change) from lawyers. The developments of UK, US, and Australia have, however, prompted new offerings, which include focussing on better service delivery and R&D to find ways to speed recurring legal work with better processes and project management and targeted people solutions. The cost savings for the European legal industry is predicted to emanate from combining process improvement, legal outsourcing, and traditional legal services. In effect, efficiency gains and consistent quality will drive the business model instead of obstructing it.
In recent years, in-house corporate departments and legal service providers (those not ‘engaged in the practice of law’ but in delivery of ‘legal services’) have accounted for nearly half of total global legal spending. Their growth spurt is credited to tech and process savvy delivery capability and corporate structures. Many corporate clients are already engaged in legal innovation, a dramatic shift, in several ways. Firstly, there is an increasing willingness to avail services from providers whose delivery models differ from the traditional law firms; secondly, more work is being taken in-house; thirdly, there is sourcing of work—either internally or externally—to providers better aligned with the company’s risk tolerance and enterprise goals; fourthly, technology and process are being increasingly utilized to promote efficiency and reduce cost; and lastly, the longstanding notion that only law firms—and lawyers—should perform all ‘legal’ functions is being challenged. Legal problems are now being viewed as business challenges which raise legal issues. Arguably, a single dominant alternative to traditional law firms might be a distant possibility, but the quest for new models has truly begun and is yielding an array of options for the clients.
A key aspect of legal innovation is collaboration. The need for lawyers to collaborate has gone beyond the “business of law” as complex business challenges need services of not just private practice specialist lawyers, but also of professionals from other disciplines as also in-house legal teams. Since legal solutions are no longer purely legal, there are lessons for lawyers in the unconventional strategic alliances which are taking hold in businesses.
There is an emerging consensus that “innovative disruption” should not be viewed through the prism of law firm versus service provider; AI versus lawyer; inhouse versus outsourcing. Rather, a subtle approach is needed. In the corporate segment of the legal market, clients assign different values to different tasks, matters, and portfolios. Since value is derived from context, the key question is: what is the appropriate resource to utilize for a specific task, matter, or portfolio, based upon its value to the client?
Indian Legal Industry: When Will Technology Disrupt it?
The legal industry in India is bound in tradition and is labor-intensive. The traditional aversion to risk has meant the legal profession has not been in the forefront of new technology. Further, the fundamental principles upon which the legal industry is built makes it resistant to change- it is expensive, adversarial and inaccessible. There exists a vast untapped market with many individuals and businesses not optimally utilizing the legal services due to high costs. Many law firms in the country are not familiar with the impressive advances in artificial intelligence technology tailored for legal work. Law-tech experts say the “legal industry is ripe for disruption in India”, although a robot is not likely to replace lawyers anytime soon.
Having said that, the first signs of innovation are surfacing on the periphery of the legal profession. Research has branched out of library and on to online databases; contracts are getting automated—being produced by algorithms populating standard templates with transaction particulars, alternative legal service providers are trespassing into the once exclusive domain of the legal industry and steadily moving up the value chain; start-ups are developing virtual legal research assistant to automate mundane tasks that are largely the responsibility of lawyers; and Artificial Intelligence is waiting in the wings to gain foothold in the practice of law. In January this year, a leading law firm in the country became the first to use Artificial Intelligence technology and to drive innovation initiatives in the legal-service delivery by setting up an “innovation lab” for exploring cutting-edge technology and different delivery models to their practice. As the digitization of court records in India advances — the Supreme Court digitized a staggering 10 million pages and records of civil appeals this year — it is expected AI will be adopted by more law firms. Notably, AI’s capabilities are best utilized when digitized documents are available,
At the other end of the spectrum, the role of corporate counsels has evolved significantly in terms of what they are bringing to the business by leveraging technology to improve accessibility, efficiency and transparency. From being seen primarily as go-betweens with outside counsel, today they are strategic partners involved in setting the risk appetite of the company. With businesses now looking to the in -house legal department to provide a comprehensive service, in-house legal teams are adopting ways of working with technology that are customized to the needs of the business, making them more efficient and cost-effective.
Skepticism persists. Typically, senior lawyers and law school professors believe that AI will not allow their associates and law students respectively to hone research skills. The advocates of AI argue that harnessing AI to legal research is a new kind of skill set that itself needs honing for increased productivity and efficiency. Besides AI cannot replace lawyers for despite proving useful in scanning and predicting what documents will be relevant to a case, lawyers’ tasks such as advising clients, drafting legal briefs, negotiating, and appearing in court seem beyond the realm of a clever software!
In the age of Internet, can lawyers continue to be treated as custodians of legal information? With the need for collaboration across sectors emerging as a key factor in driving businesses, what is the relevance of the traditional adversarial approach to lawyering? As with every other industry, it is not a question of if, but when will the Indian legal industry be “disrupted by technology”. Adoption of transformation and innovation strategies that include not just application of advanced technology in the practice of law, but also the commoditization of legal knowledge and introduction of unique skill sets to keep pace with the economic and social changes, is a matter of time.
The Author would like to acknowledge the conversations with Keshav S. Dhakad (Group Head & General Counsel at Microsoft India) on the subject which led to this article.
Richa has over 12 years of experience in legal writing and editing. She completed her Masters (LL M) in Commercial Laws from the London School of Economics and Political Science and is a qualified Solicitor in England and Wales. Richa started her career with SNG & Partners (New Delhi), a pan India banking law firm. She went on to pursue her interest in legal research and writing as the Senior Legal Editor with LexisNexis India. Her subsequent stint as the Consulting Editor of Lex Witness, India’s first Magazine on Legal and Corporate Affairs, honed her analytical understanding of legal subjects. Richa is also a Co-founder of Live Law and writes on wide-ranging subjects related to law.