NewLaw: cradle of innovation in the legal sector
What is stopping innovation at law firms? Whether or not we like to hear it, one of the factors for resistance is in the DNA of the sector itself: law firms are professional partnerships governed by systems that promote the particular interests of each partner to the detriment of the common good. This is explained by Jordan Furlong in his article “Law firm innovation: from idea to implementation”. The majority of them are groups of professionals practising law under the same roof, sharing costs and a brand, but not a legal services enterprise.
In the United Kingdom, with all its classicism and traditionalism but also its vision of the future, the sector was opened up in 2012 so that law firms could be owned by non-lawyers (Alternative Business Structures), which allowed in outside capital, whose interest is in maximising their investment through the creation of strong, sustainable businesses. These ABS, together with other legal services businesses and some law firms, configure what is beginning to be known as NewLaw: “The only Element Axiom and Other NewLaw players he has in common is pair or #1, the attraction or top talent. In all other respects the NewLaw business model is different. The investors are seeking returns on capital and are separate from the producing staff, so leverage and the tournament are not present. Certainly some, even many of the staff, have a financial interest in the success of their business, but as an asset, not to maximise equity partners’ profits each year. The balance sheets of NewLaw business models are as important as the income statements. George Beaton.
Innovation requires courage and decisiveness, but above all a great deal of data and planning. Listening to the client forms part of the process, but this feedback has to be metabolised in order to go further. As well as the advice from J. Furlong, Enrique Dans also tells us of the activities promoting innovation in businesses.
Changing the way in which legal services are provided is a form of innovation. In this sense, Berwing Leighton Paisner, probably the only firm that has an Innovation Director, set up Lawyers on Demand, a project for the provision of flexible services emerging from within the firm. Its aim is to change the client’s perception on the way the firm adapts to the customers’ needs.
In-house lawyers, for example, are asking for more routine work to be done more cheaply. Some firms have sought solutions to provide a response to this demand and add value for the client, such as outsourcing, either to external suppliers, as Slaughter and May did by contracting Carilion Advice Services or by creating a second firm to cover these services, such as Berwin Leighton Paisner (BLP) with Managed Legal Services, to provide a response for one of their clients, Thames Water, followed by others.
Changing the traditional business model of the firm is not easy, but there are interesting examples that are being very well received by the market:
- Riverview Law: It provides legal services to businesses, from SMEs to big companies. Its attraction is its fixed prices and one of the keys is the business structure rather than the partnership system. Its lawyers do what they do best: practise law. The sales network takes care of the rest, supported by a Customer Relationship Manager (CRM) to monitor commercial actions. DLA Piper is one of its shareholders.
- Novus Law: It checks, manages and analyses documents for important legal proceedings and its technology and resources are focused on drawing up executive summaries and proposals. It works with the big firms and, at the same time, competes with them. According to Ray Bayley (one of its founders): “The legal profession focuses on inputs, number of people, hours and so forth, which is important if your revenue is driven by the billable hour (…) Our model is based on outputs—how much we can produce in a given period of time while minimizing the cost of inputs and achieving world-class levels of quality.” None of the five partners in Novus Law are lawyers.
- Clearspire: One of its founders, Mark Cohen, explains that “We had to come up with a novel way to inject business process methodologies into legal services, to move the focus away from [profits per partner] and allow the firm to operate as a unified entity while outsourcing all of the business operations and support services to its sister company.” So, Clearspire is two companies – a legal firm and an outsourcing firm – that feed off one another. The injection of capital from non-lawyers is achieved via this second company (ABS have not yet been made legal in the USA). Coral was set up by the founders of Clearspire. It puts lawyers and clients in contact through virtual offices and high-tech videoconferencing.
- Axiom: Also based on business processes, it began providing what are considered as basic or commodity services. It now advises big operations, obtaining annual profits of $17 million a year and this year it has achieved $28 million in outside finance, which it is going to invest in technology. Its recipe for success: “design, execute, measure, repeat”.
Technology plays a fundamental role in this process of change through innovation. Richard Granat and Oliver Goodenough were visionaries for this change a long time before their colleagues understood what they were talking about. Now, the legal technology businesses showing their products at LegalTech New York and LawTechFutures, among others, not only provide management solutions for firms, most of them also offer software capable of doing legal work better, faster or cheaper, or all through at the same time. As Goodenough says: “One thing is for sure—technology and law are the wave of the future.”
Universities are a long way from being able to internalise these changes and prepare their students to feed the new range of professional profiles demanded by the new business models, but some of them are working along these lines and developing innovation-based programmes including technology and entrepreneurship:
- The Michigan State University College of Law and the University of Westminster School of Law have, since 2012, been teaching “21st Century Law Practice” to prepare students to fill the new jobs in the legal sector which are currently on offer or which will be in the not very distant future. Businesses in general and the leaders in technology need lawyers who understand their work, facilitate innovation, motivate enterprise and respond flexibly to a continuously changing environment.
- “Law Without Walls” at the University of Miami (Miami) involves students in seeking innovative solutions to solve real problems related to legal practice.
It is not easy to find new ways of providing legal services. There are various examples of innovation and we are lucky enough to be able to see how they are working and how the market is responding to the proposals. Change has to be internalised, to form part of the DNA of the organisation. The introduction of changes motivated only by falling profits, in the hope that these changes will not be too far away from what the market is demanding and expecting, in order to maintain the status quo is not going to work.
The Spanish legal services consumer has no alternative but to accept it because of the lack of alternatives, and it is possible that this is what some legal operators are hoping. But it is just a matter of time (very little time) before these alternatives will be here too. We have time to react, to adopt innovative initiatives, to change, to adapt to the market and to move from BigLaw to NewLaw, and along the way the big firms can play a fundamental role.