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Questions & Answers on Ron Friedmann’s article

Q: In contrast with other industries where companies themselves are eager to innovate in order to increase their market share, innovation in legal is mainly driven by the client side of the industry. The traditional profit model - more or less - prevents the eagerness to innovate. Do you think that the traditional law firm profit model plays an important role in the fact that none of the new technologies you mention are able to disrupt the legal market?

A: I view the premise here - that clients innovate more than law firms - as an empirical question, not a given. Many in-house departments seem to be less well-equipped with tech than are their outside counsel. And the law departments that do innovate appear to be the exception, not the rule. But of course we lack good metrics to know for sure.

I believe that the profit model of law firms is a contributing factor to what strikes me as slow uptake of tech - old and new - and seemingly slow innovation. The profit model of Big Law does face pressure but management moves to cut staff, reduce overhead, and de-equitize partners means that the remaining equity partners continue to prosper. But perhaps more important than money is the lawyer mindset of wanting to focus on the substance of law much more than on their own processes. This, taken with no apparent compelling economic reason to change, slows in-novation.

What might change law firm behavior is if clients switched to more efficient and innovative providers AND explains to the now for-mer outside counsel why they have become "former."

Ron Friedmann

Q: You mention the economic crisis and the effect it had on the secretary-to-lawyer ration: a cost-cutting exercise so to say. Do you think that in fact AI will result in a similar exercise, but then amongst paralegals and professional support lawyers? Cost savings instead of true innovation and disruption?

A: Great question. On paralegals, I am hard- pressed to answer because they do so many different tasks. I've long been perplexed about how little survey data I see about paralegal and how few anecdotes I hear. I am cautious about any generalization because there is such a wide range. I suppose some doing rote work face risks from automation, AI or otherwise. But others with years of experience and excellent judgment face no more risk of being automated out of work than lawyers do.

As for PSL, by definition, they are very experi- enced lawyers who exercise a high level of pro- fessional judgment. They are the ones turning work product to precedents and monitoring legal updates and writing memos to explain what they mean. If that can be automated, then so too can much of law practice. I don't rule that out but can't see it happening in the next decade - or two. And answering both questions brings me back to my article. I would love to proven wrong. Granted, my assertions are not fully backed by data but we can all see the limited change in the last few years in the legal market. Those who forecast disruption ought to describe in more detail exactly how, why, and when it will occur.

Q: I think Ron is right about disruption actually being an incremental change. But then again is defining disruption nowadays not more a discussion about semantics around the definition of it. Meaning that a new product or process can be very disruptive for a department or organisation?

A: I agree there is a lot of semantics here. Let’s stipulate that disruption means a sudden or abrupt change that stems from a fundamental restructuring in the means of production, dis- tribution, or consumption. I think that is the sense that most mean when they use the word. With that definition, I don’t see a strong case for disruption even at the more granular level of department, practice, or organisation.

Consider law firm staffing and functional departments. The only rapid change I can remember in over two decades is the shrinking of the number of secretaries in large law firms. The legal market was moving in the direction of growing the ration of lawyers to secretaries for some time when the economic crisis hit. Between roughly 2008 and 2011, many large law firms let go many secretaries.

I view that as a response to a crisis of falling profits, not disruption as defined above. Other departments such as marketing, finance, and IT have grown in many law firms. The func- tions performed have changed but only gradually. (When law firms outsource a function, that can mean terminating many jobs. Functionally, it simply transfers work, so is not disruptive. Of course, it can be terrible for the individuals affected.) Consider practice areas in law firms. As some practices such as immigration, municipal finance, or labor and employment face rate and profit pressure, lawyers often move firms and firms sometimes eject entire practices. Some lawyers may end up without a job or lower income but the effect is mainly one of moving where the lawyers work. At the same time, other practices such as privacy or internet law may grow rapidly. I cannot point to a single practice in business-to-business law that has been disrupted.

As for organizations, many law firms have been absorbed by other firms. That can occur as a result of distress or strategic advantage. It may affect individuals adversely it’s not disruptive.

Q: Looking at the development of new Tech solutions, I think that most of the new offerings are still based on the automation of old processes. One can argue that something new and innovative is going on, but most of the time we put ‘old wine in new bottles’. Our Rolodex, combined with our AS 400 client system -and some other products- became a new solution we call CRM software. Our NDA and other models that were based on written documents became ‘automated decision trees’ we now call our Contract Tool.

In other words, there is not a significant and disruptive Tech change going on, only automation and reshuffling of traditional processes in to software and online Products. Thinking about real disruption, can you give an example (or a hypothetical example) of what you would think is a really disruptive innovation in this market?

A: I can’t give an example – after all, I’m the guy who keeps saying “I’m not seeing it.” In my view, the Blockchain is the technology most likely to have shorter term impact on the economy and lawyers. Its ability to reduce friction in the financial system has led to massive investment in R&D. Rapid Blockchain commercialisation likely would change the legal work lawyers do. Longer term, it has the potential to reduce legal demand but shorter term, it more likely will increase demand as markets grapple with novel questions.

The biggest AI disruption potential I see in the next decade is the autonomous vehicle. Short term, that is already creating novel legal issues, so lawyers will benefit. Perhaps long term, it will reduce tort litigation.

Q: The amount of Software solutions for the Legal Market is growing rapidly. Also the use of tech-based products in the legal sector is becoming more and more accepted and for me as a Lawyer, a tech solution is part of a normal transition in aligning my business in the most profitable way. Thinking about disruption as Clayton Christensen described it, what is your opinion about the position of clients in this process? In the end it’s the client who decides what kind of service he accepts, don’t you think so?

A: Yes, clients decide. And clients of large law firms, who are largely in-house lawyers, are no more adventurous than their outside counsel. If clients adopted and used properly all available technology, I have no doubt that efficiency would dramatically improve. Just learning to use Word and Excel properly would do much!

There is plenty of room with document automation and document analytics (based on machine learning) to improve efficiency – but those don’t disrupt. Looked at another way, if a client licensed every available AI system – whether machine learning, natural language processing, expert system, or other – it would only affect a small percent of the overall work.

To be sure, clients have made changes, some driven by tech. For example, relative to docu- ment volumes, we need fewer lawyers to review them because of computer assisted re- view. But so far, tech has not disrupted the business-to-business legal market.

Q: All around the world tech based solution replace parts of legal work or even replace the use of legal specialists on certain levels. E.g. Dragon Law is a successful legal product for Small and Medium Enterprises (SME) in Asia/Pacific. The proposition is actually competing with lawyers (those who their job consists of this work). Do you think that these initiatives finally will replace certain legal work and therefore lawyers (starting with Small Law but expanding to Big Law)?

A: When I look at my two-plus decades in the legal market, I do not see technology replacing lawyers generally. Rather, I see it enhancing what they do. I suppose one can create scenarios where a robust automated system, for example, document assembly for a certain type of agreement, eliminates some jobs. In the real world though, to the extent that we see that effect, lawyers typically are able to transition what they do. The one exception may be tools that auto- mate document review in litigation. Such automations appear to have reduced the demand for contract lawyers, at least relative to document volumes.

*LegalBusinessWorld PP consists of Lawyers/GC/Judges/other Legal Professionals