Ten years ago, clients with a legal matter had essentially two options. Send it to a traditional law firm or handle it in-house. Today, clients have many more choices.
Different providers are mushrooming – a trend only likely to grow – offering a huge range of legal-related services. In-house departments have grown and become more sophisticated. How should traditional law firms respond to these shifting tectonic plates in the legal landscape?
The forces driving change
No one can seriously doubt that profound changes have been taking place in the global market for legal services over the last 10 years.
Nor is there much doubt about the causes: globalisation, technology, liberalisation of markets, the rise of GCs and economic pressures resulting from the post-Lehman recession have combined to create a more complex and more competitive legal marketplace.
Even if you doubt the permanency of these changes, it’s hard to ignore the facts. One measure of how things have changed is the rate of turnover growth for traditional law firms.
In the 10 years up to 2008, my firm, like many other firms, experienced double-digit turnover growth every single year. Sometimes turnover grew 15 percent per year or more. It was a seller’s market. Since 2008, squeezing out any turnover growth at all has been a challenge. The same is true for most law firms. This is a buyer’s market.
In this new environment, I often sense deep frustration with the traditional law firm model when I speak to GCs around the world.
Yes, of course, they recognise there will always be a place for firms that can deliver on “bet the farm” matters, offer exceptional client service, project-manage huge transactions or have the deep specialism they might need.
However, GCs have a lot on their desks that doesn’t fit neatly into those categories. They themselves are typically under tremendous internal pressure to find more effective, quicker, cheaper ways to process legal tasks, manage risk and demonstrate they are adding value to the business.
Many find it irritating that traditional law firms want only the cream; frustrating that law firms seem unable or unwilling to adapt to meet their changing needs as clients, in the same way their own organisations have been forced to adapt to rapidly changing markets.
We ignore what our clients say at our own peril.
And they know what they are talking about. One of the most significant changes over the last 10 years has been the rise of the GC in terms of status and power. Many are recruited from traditional law firms. They know what we are good at, and not so good.
These are sophisticated clients capable of assessing value and quality in legal services. Even if some might deep down prefer to stick with the traditional hallmarks of quality they know – top law firm brands – they have little choice but to experiment with alternatives.
New models, new services
The result of these developments is a legal market that is more diverse, dynamic and multifaceted than ever before.
New types of service and service providers are now available to clients including the following:
- Contract lawyers: Self-employed, independent lawyers engaged for short periods or a fixed term to provide flexible project support or fill an absentee position.
- Document review services: Outsourced organisations which review high volumes of legal documents at a lower cost, sometimes by non-legally trained individuals (often used in litigation or due diligence).
- Managed legal services: Contracting out all or part of the function of an in-house legal team to an independent legal provider.
- Online legal services: Standardised legal advice available only online; often accessed through a subscription service.
- Legal consultancy: Independent consultants who advise on the management and operation of a legal department or the structuring of a large piece of work.
- Hybrid legal solutions: Collaboration between two or more of the above providers often combined with process and technology innovations.
Increasingly, clients are turning to some or all of these “nontraditional” delivery models to help solve their most complex legal challenges. They are determined to get the right advice for the right transaction at the right price. They expect, rightly,their partner law firms to be alive to the new possibilities and to be open to offering their services in different and innovative ways.
A global revolution
There is no doubt that appetite for the new types of service is already high.
In 2014, Allen & Overy carried out a survey of 200 senior clients – mainly at GC level – spread across five regions of the world and covering corporate and financial institutions.
Two-thirds of those interviewed were already using contract lawyers, one-third said they had used document review services and around a quarter were using legal consulting or online services.
When asked about future preferences, most organisations expected their usage of the new types of services to increase. A&O’s survey also showed that, on average, usage of the new services is fairly evenly distributed across the world’s main economic regions: North America, Europe and Asia Pacific. Organisations in the Middle East and Africa have been slower to adopt the new services, but said they expected to catch up quickly over the next five years.
The size of the prize
What do these changes mean for established law firms and their clients?
The opportunity for clients is clear: to combine the different resourcing options now available with new technology and improved business processes to create more value for less cost.
In practice, this means looking afresh at the way legal tasks are approached and managed. By disaggregating larger pieces of work – for example, an M&A deal, a complex dispute or a regulatory investigation – into their constituent parts, it is possible for clients to allocate work to multiple providers to drive down cost without, if done properly, compromising on overall quality.
For example, a project may require the high-level advice of a traditional law firm, combined with document review conducted offshore at lower cost, some specialist consulting input and four or five contract lawyers on the ground in the client’s premises. These resourcing options are then enhanced with smart technology and project management to produce an entirely new, hybrid solution to the client’s specific legal challenge – faster and more cheaply than was previously possible.
For established law firms like A&O, the opportunities are no less exciting. Whether by diversifying into some of these new areas, or partnering with third-party providers, or a judicious combination of the two, it is possible for the traditional law firm to offer highly integrated, cost-efficient services, which can be combined in a thousand different ways to meet the needs of clients, ultimately enhancing the relationship.
Allen & Overy’s approach
A&O has been investing in the new services for some time, to provide clients with more flexible, tailored solutions to their legal challenges.
Of the six new types of legal service described, A&O has invested in five (see diagram above).
I don’t suggest our way is the only way, but I do believe law firms will increasingly have to place some bets on what is right for them.
We have adopted a seed-corn approach to investment – invest relatively modest amounts of money into different projects. See which ones work and back them some more. Pull the ones that struggle to gain traction with partners or clients. Proven success in one area gives us credibility and “permission” from the partnership to try the next.
We see it as critical that any new services are deeply integrated with our traditional, high-end law firm model. While we operate them in separate businesses, they have to be aligned with, and supportive of, our core business. For example, compensation of those running them is aligned to partner compensation rather than the results of that new business alone.
Our partners have to see they will ultimately benefit from these new services rather than be cannibalised by them. They have to help us win more work for our core business, albeit perhaps executed in different ways. We need our partners to be enthusiastic salespeople and advocates for these new services if they are to stand any chance of succeeding with clients.
In 2012, A&O created a Legal Services Centre (LSC) in Belfast which specialises in large-scale document reviews – contentious and non-contentious – supporting A&O offices around the world. We recently added our 65th lawyer to that team. Typical matters can involve many hundreds of thousands of documents, email chains, chat-room messages and audio files. The pressure to manage costs is enormous. Speed and accuracy are therefore essential.
Despite initial warnings that departing from our traditional model would diminish quality, our experience is the opposite. The quality of the work has improved. Our team members have become highly skilled specialists in process and use of workflow IT that has become a competitive advantage.
In late 2013, A&O added to its portfolio of services by launching a flexible resourcing business, Peerpoint. This business offers clients access to a panel of experienced, high-calibre lawyers available to work flexibly on a contract basis for either temporary placements or specific projects. Having initially focused on sourcing lawyers from A&O alumni and working with A&O deal teams, Peerpoint is now recruiting people from other top-tier firms and making placements direct to clients. There is strong momentum in the growth of our panel of lawyers, with over 50 now part of the London business, and we are exploring international expansion having launched in Hong Kong at the end of 2014.
Does it work?
We can point to numerous examples of clients enthusiastically embracing these new services.
We recently won a competitive pitch for one of the largest projects the firm has ever handled. In a letter detailing why we won the job, the client identified what our Belfast operation offered as one of four main reasons for our success.
In another case, a large multinational company, with a presence in some 57 countries, was struggling to manage its global counterparty risk. It needed to transfer data about that counterparty across borders, a highly regulated activity, and it had spent a lot of money conducting a legal survey so that it knew the law relating to cross-border data transfer in all 57 countries.
The difficulty was that, quite apart from the cost, the database became out of date and unreliable very quickly. The company was faced with repeating the whole exercise regularly, at further considerable cost.
A&O’s solution was to create an online service. We carried out a legal survey across 60 countries and from that created a database of the most frequently asked, practical questions regarding cross-border data transfer – applied information that the company could act on.
We presented the data in a visually appealing, traffic-light format: red meaning no, you can’t proceed; amber, you can proceed but be aware of certain issues; and green, yes, you can proceed.
The beauty of this arrangement for the client was that the service provider (A&O, in this case) took on the risk of creating and maintaining a system which would exactly meet the client’s need. A&O could then go on to sell the service to multiple subscribers for a modest annual fee.
Demand for such online services has mushroomed in recent years. In the period 2007-2014, A&O’s revenues from online services grew by 919 percent.
We have seen similar success with our Legal Services Centre (LSC) in Belfast. Clients have appreciated the team’s ability to turn around very large document review exercises within short timescales, reducing management time and stress for the client and leading to a number of repeat instructions. In the past two years, revenues have more than trebled as the range of practices and geographies served by the LSC expands.
We are seeing strong demand from clients for Peerpoint lawyers on placement – not only do they offer a consistently high quality, they come with the backing and support of A&O, as an integral part of our client relationship.
We have made placements at a number of major banking institutions and corporates. We are looking to grow the business threefold in the next 12 to 18 months.
Conclusion
It is clear that clients and their law firms both have much to gain from these new ways of working. We may not yet have all the answers but many clients appreciate the fact that we are trying. When they use these new services, clients are typically delighted with the flexibility and cost benefits offered by the new models. For the law firms who get it right, there is the prospect of achieving significant and sustainable competitive advantage over their rivals.
Research conducted with 198 general counsel and other business contacts at corporates and financial institutions in 27 different countries. The views of 185 individuals were captured through 20-minute structured telephone conversations. A further 13 individuals participated in a longer in-depth interview.
Collectively, these organisations spend nearly GBP3.5bn on external legal services. Almost half (48 percent) of the interviewees are responsible for making legal decisions across their entire company or group globally. Research and analysis was conducted by Meridian West, an independent consultancy.
About the author
David Morley is Allen & Overy’s worldwide senior partner and a member of the Mayor of London’s International Business Advisory Council. David chairs Prime, the UK legal profession-wide initiative to provide fair access to quality work experience. |
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