Technology adoption among established law firms has for ages been a snail-paced reform, but the global health crisis, pressures from clients and competition from younger firms and alternative legal service providers are forcing the hands of sluggish doubters. In the first of a two-part series exploring legal tech, Mithun Varkey asks the experts where the evolution is heading
The legal industry, finally, seems to be embracing technology. While the change was a long time coming, the pandemic has left little choice for legal practitioners but to accept it, even if grudgingly. The need for collaboration in times of social distancing has forced even the courts, those bastions of traditionalism, to allow themselves some tech disruption, which then meant lawyers had to follow.
It is not that the legal industry is led by luddites. The importance of conventions and the nature of the profession mean they are trained to adhere to time-honoured protocols. Also, because their business models remain unchanged, where clients are charged for billable hours, clocked in six-minute increments, there are few incentives to bring in massive efficiencies.
For the past couple of decades or so, when law firms started investing in technology, it was primarily around e-discovery, contract management, billing management, and some online collaboration tools. While these were necessary steps, the core of a lawyer’s job remained relatively untouched by technology.
However, in the past few years technology startups have tried to disrupt the way lawyers work and how law firms operate, which has led to a profusion of tech tools and solutions, and an explosion of legal tech companies.
A 2021 global survey by the Association of Corporate Counsel notes: “The list of technology areas that apply to the legal function has increased from 22 in 2018 to 26.”
Drivers of change
Most law firms have been mindful of the need to adopt technology, but the pandemic has accelerated this need and been the most crucial driver for tech adoption, bringing IT and innovation teams at law firms to front and centre.
“Obviously, the pandemic has been transformative in so many ways,” says Andrew Klein, founder of Reynen Court, a legal tech aggregation platform. “On the one hand, an industry that had never supported virtual remote work, people not being in the office, and the deal documents not being in the conference room, had to change overnight.
“That was very positive for IT departments at the big law firms because they scored very high points, they did very well. They made that transition look very smooth, and I think with almost no real exceptions. They were very successful at becoming virtual. So the change is very real. It’s coming from clients who see opportunities to get more for their money and have the industry modernised.”
Ofer Bleiweiss, founder and chief executive officer of Everchron, a Los Angeles, California-based litigation management software company, says he has noticed higher legal tech adoption since the pandemic, especially in the case management space. “The need for effective remote collaboration has forced law firms to accelerate the transition,” he adds.
Chris Combs, co-founder and senior vice president of Business Development at Linksquares, a Boston, Massachusetts-based contract management and analytics platform, notes there was a big trend leading up to the pandemic. “Companies were reaching out to us, saying they were interested in understanding how they could use AI, and that they had a budget set aside for that, which is something that has happened in the last few years,” he says.
“The pandemic drove a ton of new interest in usage because teams actually did need a cloud-based product they could access from anywhere, because many of them were at home. Then they were running into new reporting challenges that they had never seen before, the most obvious one being force majeure. So they needed to know which commercial agreements included force majeure clauses and so that was a big driver, which has continued and increased.”
While the pandemic may have been the immediate catalyst, there has been a favourable trend in tech adoption, partly forced by the clients, and partly because law firms face immense competitive pressure to keep up with the times. The availability of new tools, the rise of younger and more tech-savvy firms, and alternative legal service providers all contribute.
“Law firms are feeling a lot of pressure from the outside − both from the clients as well as new market entrants,” says Mary O’Carroll, chief community officer at San Francisco-based contract lifecycle management company Ironclad. “There’s competition now from the big four, from companies formally known as alternative legal service providers, and even competition if you will from internal corporate legal departments that are starting to do some of that work themselves.”
Philipp Thurner, the CEO and founder of NEXL CRM, a Sydney-based client relationship management software provider, says in-house counsel are getting smarter with tech. “They’re not willing to pay for inefficiencies,” he says.
“They are expecting their law firms to adopt technologies to remove inefficiencies in their service delivery to help reduce their legal costs. I think this is one of the largest drivers for innovation, that in-house have more pressure internally, obviously from their business.
“At the beginning of my innovation journey law firms said, if you introduce these technologies and make us spend less time on matters, you are shaving off revenue. Why would we want to remove extra time we can bill to clients?”
Thurner says back then clients were willing to pay for those inefficiencies. They didn’t have the pressure they have now from their CFOs. “They don’t have the funds available anymore and therefore it is important for law firms to adopt technology and help clients cut costs. If clients are not willing to pay as much, clients will be forced to either keep more work in-house or start using alterative legal service providers (ALSPs).”
Marianne Baroud, regional channel manager for New York-based legal practice management solutions provider App4Legal, says in-house legal teams are now the decision-makers when it comes to adopting legal tech. “Most often, they become advocates for legal tech because they can see the return on investment and how it improves the way they work, increases collaboration and efficiency, and how it is driving better results,” says Baroud.
Although in-house legal teams have been playing the role of tech evangelists in the industry, some feel that enough isn’t being done from their end.
O’Carroll, who until recently joining Ironclad was the head of Google’s legal operations team, notes that most of the corporate lawyers came from law firms. “They were trained at law firms, and so that’s the model that they know and understand,” she says. “So, for internal corporate lawyers to be the ones demanding that change, I don’t think that’s fully happening at the rate that we would like it to be, quite yet. And the bottom line is that law firms still have the same business model, and we haven’t really seen that changed yet, despite all the pressure they’re feeling.”
Others argue that law firms are more willing to upgrade now. “I think both things are true,” says Klein of Reynen Court. “A lot of the change has come from [in-house] legal departments and continues to be driven by expectations that the legal departments are going to demand modernisation,” he says.
“But it’s also definitely true that many law firms, I won’t say all the law firms, but many truly believe that innovation will be a defining competitive opportunity for them. In seriously investing in people and technology, they can bring ideas to their clients. They can win new clients and more business from their clients by being truly more efficient, more transparent and more committed to modernising.”
Jon Bartman, head of UK-based Jameson Legal Tech, says he sees the evolution occurring. “A year ago, it was very much that corporate legal teams were pushing for legal tech adoption from law firms, as many of these companies were going through a digital transformation in finance, in marketing, in sales, in everywhere else, so it only made sense to have a digital transformation within the legal team at the same time,” he says.
“But what we’re seeing in the past six months, however – this may well be pandemic-related – is that a lot of law firms are really stepping up their search for digital transformation. They have realised office-based work has changed enormously. We now need to work out ways and systems. We’ve worked out how we can work from home, which is a great thing.”
Tarun Kodnani, co-founder of Flowace, an India-based automated timesheet management software provider, says the health crisis provided the impetus. “The pandemic was a catalyst for legal technology adoption and companies like ours got a boost,” says Kodnani. “However, technology adoption is still dependent on leadership, and decision making is often slow because lawyers are often very busy,” he says. “They value data, privacy and security. Any new tool has to have enough impact and bring change. Validation of the technology from the market is also crucial for a law firm before they adopt it.”
Baroud, of App4Legal, notes that law firms and all legal professionals are becoming more convinced about adopting legal tech. “However, we still face some resistance from those who believe in legacy systems and ways of doing things,” she says, “but the new generation of lawyers is embracing technology very well.
“There are many challenges that law firms face in adopting technology, and they vary depending on the country or region. Some of the issues include data privacy laws, technology infrastructure in the country they are in, budget and legal tech spend, market maturity and readiness, as well as clients needs.”
The buyer’s dilemma
Whether it’s by push or pull, there is no doubt that law firms are seeing the value in implementing technology. However, that presents its own set of problems for them, the first being the nature of decision-making at a law firm.
“Another thing we realised is that law firms don’t have proper processes in place to buy new technology. There is a big buying problem. Many law firms don’t know how to successfully buy and implement technology,” says Thurner. ““One of the main reasons is the partnership structure. You have too many decision makers who all have their own agenda. The more decision makers you have, the more difficult it is to come to a decision. Usually, the easiest thing to agree on as a group, is to not do anything at all”
Mark Schroeder, area director, North Asia for legal technology company Epiq, believes it’s less of a buying problem, more an adoption problem. “It’s one thing for law firms to purchase legal tech, but fundamentally changing the culture to fully adopt such tools into their current workflow is another. There is a need to foster a technology culture in the firms. Otherwise, it is a model that is difficult to break,” he says.”
Graeme Grovum, a co-founder of Australian legal tech consulting company Alpha Creates, says, “Many firms are falling into the trap of ‘innovation by press release’ where they announce that they have implemented a new technology, but if you look closer, adoption is very limited.”
“One thing that law firms and legal departments can do to improve their strike rate with legal technology is to look at how other industries are solving similar problems,” Grovum says. “A lot of tech needs can be met with software applications that they already have but that are not, strictly speaking, legal tech. Microsoft 365, for example, can be customised to meet a lot of the needs of a law firm, and doesn’t necessarily require a firm to go out and buy new tech.”
Law firms have been addressing their buying and adoption problems by hiring experts, many firms have chief technology officers tasked with buying and implementing technology.
“Larger law firms are becoming more sophisticated” as they are hiring specialised people, says Thurner. “If you have a proper use case, which lists out the problems you are trying to solve, what the expenses are, the business impact and assign responsibility, then you have a proper plan in place; then it’s easy to actually implement software and get people to use it because they have a purpose for it. If there’s no proper use case, no proper process, then you implement something, which is just floating around and no one will use.
One of the big technology questions that law firms face, which has become more stark, is whether to adopt cloud technologies or retain legacy on-premise servers. It is an argument that continues to divide opinions among law firms and technology vendors.
With the pandemic and work-from-home restrictions, the need to access documents from anywhere has become extremely important. But the sensitivity of documents that law firms handle, client demands, and regulatory requirements make it difficult for law firms to embrace the cloud completely.
“The benefits of the cloud outweigh the risks,” says Stefanie Santana, business development director for APAC at Epiq. “The pandemic opened the eyes of a lot of law firms to the benefits of migrating to the cloud.”
Bleiweiss of Everchron also believes that “for many firms, the cloud is more secure”.
“Most firms do not have the IT resources to provide the security that a cloud provider can give. In fact, many legal tech companies are transitioning away from on-premise solutions and are embracing the cloud.”
Combs, of Linksquares, which is a cloud-only product selling to corporate legal teams that are comfortable with this, says: “I think it is 100% safer. What you have is large firms with large teams that are being paid a lot of money to run those internal servers and host them.
“As you can imagine, they’re not really that eager to completely give that strategy up. That’s going to be the long tail of the adoption cycle, but there’s no question that it’s the future and that it is, in fact, more secure because the security is centralised.”
Thurner says there is a much stronger push towards the cloud, which he applauds, but believes the process is still quite complex and complicated. “Law firm’s also have high security standards and for technology start-ups to go through the firm’s due diligence process, takes a lot of time and effort.”
“It’s not just because law firms are trying to make it hard, it’s also the pressure they are getting from their clients,” he says.
“If they are working with banks, they have specific data security protocols to follow to comply with their client’s requirements. There are certain things that you’re allowed to do and you’re not allowed to do. How it integrates, where the data are stored, how it’s moved around, all have specific requirements. So, if you build a system and it doesn’t fit these requirements, law firms can’t buy them.
Thurner says a lot of startups don’t have a background in the inner workings of a law firm. “That’s why there are great solutions out there, but firms can’t buy a lot of them because they’ve built them the wrong way, that doesn’t fit with the firm’s infrastructure and is just not fit for purpose for them to be able to implement. And it happens a lot.
“So, law firms must be careful in migrating to the cloud because of their contractual obligations, so they stay compliant with their own contracts with their clients.”
Klein, whose Reynen Court platform allows law firms to accelerate their cloud adoption, has a more nuanced view on the issue. “The real trade-off for the firms is not outsourcing [adopting cloud] or resolving to keep the old data centre,” he says. “They will do both for a long time to come.
“In the engagement letters of many big law firms with many big clients, it’s prohibited to take the documents from the client and put them anywhere without the explicit permission of the client.
So in that world, you’re paralysed. If you want to adopt the latest, newest technologies, you have to go back and get permission, maybe from 100 or 200 different clients.”
Klein believes the future holds a so-called “multi-cloud” for all of the firms. “As they make this journey, most of them will eventually give up running their own data centres,” he says. “The more important question for the law firms is, how many different cloud environments can they be exposed to, and should they be responsible for? Do I want a world in which each application brings its own cloud, its own people, its own policies? Can I imagine a world in which I can bring hundreds of different software applications and a plurality of clouds under my control?”
Reynen Court offers a private cloud that will eliminate the need for separate permissions from clients. “Think of it as almost a hybrid between the old data centre model, where you have the advantages of controlling the modern cloud world, where you don’t necessarily have to have people babysitting the servers, but you can outsource,” he says. “Bring up a virtual private cloud, have sole access to the encryption keys, and bring hundreds of different applications to run on it.
“You can also do the same thing in your physical data centre, if you already have one and it has a useful life. For the next five years, you don’t have to throw that away. The choice for the firms is not their data centre versus Microsoft Azure or Amazon Web Services, but clouds under their control versus getting rid of their own plan and trusting each and every vendor with their data.”
Klein cautions that this is not for every firm. “It depends on the firm’s practice, the size and significance of the customer base, and the demands on your people to maintain compliance and security at the appropriate standards,” he says. “If you are a small law firm with small and mid-sized businesses, it may be very well served by SaaS (software as a service) solutions.”
Bernie Sugano, operations consultant at Jameson Legal, says: “In terms of impact, covid-19 has helped shift the view of legal tech from a far-off goal to a new normal that every law firm and in-house legal team can adopt easily.”
The pandemic-driven adoption of legal technology seems like a big leap, but it is still only a first step. The real test, says Santana of Epiq, “is in changing the mindset of law firms and bringing about a culture that is ready for change”.