Growth symbolises the rise of alternative legal service providers
Legadex: ten years and counting | An interview with (from left to right) Frederike Sips, Luc van Daele and Hans-Martijn Roos of Legadex
Legal service provider Legadex is celebrating its ten-year anniversary this year. That makes it a young company compared with the multinationals and law firms it serves, but in the world of alternative legal service providers it's a veteran and pioneer. Since the collapse of Lehman Brothers and the 2008 banking crisis, there has been a real sea-change in the Dutch legal market: firms are now sourcing much more smartly, adopting the ‘horses for courses’ approach and benefiting from innovations that follow each other at breakneck speed. That's why it's high time to look back on Legadex's first ten years with its founders Hans-Martijn Roos and Luc van Daele and their recently appointed COO Frederike Sips. “Companies that put their legal households in order in 2008 are benefiting in the current economic upturn.”
When Legadex was established, the economic climate wasn't particularly favourable; Roos and Van Daele launched their smarter working method in 2008, shortly after the collapse of Lehman Brothers and the outbreak of the financial crisis, in a market that was chiefly concerned with its own survival and in many respects wasn't ready for innovation. Roos had been working as a headhunter and Van Daele was previously Head of Legal at Endemol Group. Roos: “I'd built up considerable experience in spotting legal talent and Luc was good at simplifying legal processes. So we based our new company on the principle of ‘people, process & software’: once you've got those sorted, you'll avoid a lot of grief. But many companies around us were pursuing a reactive policy, and only investing in the reform of their legal structures when it was too late and they were faced with acute compliance, bribery or contract issues. Although they talked about better staffing of legal departments, clerical duties were still being performed by highly qualified lawyers. The right people weren't there yet: there were no legal operation officers or paralegals. And the software they were using wasn't innovative enough. So initially we concentrated mainly on the 'process' element, on making corporate legal processes more efficient on a structural basis.”
Van Daele: “There was very little innovation in the legal sector when we began in 2008. Hourly rates for both bulk and specialist work tended to be the same and the term 'paralegal' was virtually unknown in the Netherlands. So basically the only places general counsels could go were law firms. That's why we started thinking about corporate law departments from a clean slate, developing a model setting out the main work processes and using that to design a department with the help of IT. Cost efficiency was obviously a major driver, but more important still was the need to put the right people in the right roles, such as not using highly specialised lawyers for corporate housekeeping.”
In those days, the only places where you'd see this kind of diversification was in the US and UK, where paralegals were by now an established concept. Van Daele: “Nevertheless, law firms were also experimenting with their own business models in response to a clear demand on the part of companies for cost savings in the wake of the financial crisis. This resulted in some of the larger law firms offering commodity type of legal services to their clients, none of which got off the ground. This is no surprise, given that lawyers by nature prefer to focus on specialist tasks, which account for about 20% of the work. So we decided to focus our sights on the remaining 80%. Legadex's model is to build as solid a legal foundation as possible so that lawyers can work much more efficiently and effectively. Our first projects came from large corporates who outsourced their corporate housekeeping or contract management to us.”
This was soon followed by requests to provide support for M&A transactions: virtual datarooms involving the use of data analysis and artificial intelligence made the lives of newly qualified lawyers much easier since they no longer had to spend weeks 'camping out' in a dataroom.
Legadex's growth proved the precursor to a wider prevalence in the English-speaking world of alternative legal service providers: disruptive organisations that have now become established players in the legal landscape. A recent study by Thomson Reuters Legal Executive Institute/Georgetown Law Center for the Study of the Legal Profession and Oxford University analysed for the first time how these service providers have changed the face of the Anglo-Saxon legal market. The study, entitled 'Alternative Legal Service Providers’, describes the trend as a seismic shift. 51% of the 554 law firms and 60% of the 271 corporate legal departments that were canvassed in the United Kingdom, United States, Canada and Australia said they now used alternative legal service providers. Law firms use them for tasks such as e-discovery and litigation support, while corporates usually want help with implementing legislation and regulations and with specialist legal work. The use of alternative legal service providers is growing, but still shows signs of a market in its infancy with, consequently, an enormous growth potential.
Roos: “Law firms have been trying for ages to diversify their services and fee structures, but the biggest innovations in recent years have mainly come from outside the sector. You can project the developments that have taken place in the US and UK legal markets to the Netherlands, where the use of alternative legal service providers is becoming similarly widespread. Examples include the use of smart legal software and the way in which due diligence processes are now structured. And there's the use of paralegals, most of whom have a detailed knowledge of business processes and are good at understanding systems and work processes.”
Legadex itself has contributed a lot to the development of the paralegal profession, through its paralegal training course and the launch of a Paralegal Day knowledge and network event. It initially offered these professionals – a new concept for the Netherlands – mainly as a flexible pair of legal hands. Only later were they given specific duties and did they evolve into the structural 'lubricant' for corporate legal processes. Van Daele: “Paralegals as we know them today simply didn't exist in 2008. Initially, we used experienced lawyers who wanted to take a step back from specialist work, or clerical staff and legal secretaries who wanted to move up the career ladder. Very soon, though, we began training the right people ourselves, and paralegals have now become a clearly defined professional group in their own right. These days, they tend to be law graduates who are happier in a legal environment where there's a strong practical element involving a high level of ICT and process management. Now that this ambitious group is becoming more appreciated, I think we'll soon be seeing a dramatic rise in the number of paralegals. And in future they'll start being called operational legal counsels or business counsels rather than paralegals.”
Another area in which Roos and Van Daele expect to see significant growth is managed services: the full external outsourcing of basic services such as legal entity management and contract management. As COO, Frederike Sips now has a team of 15 paralegals dedicated to this. Roos: “When we launched our external corporate legal service in the Netherlands in 2011, the market wasn't ready for it. Only in the past two years has demand really picked up, partly because companies have got used to the remote service concept through their interaction with cloud services. Previously, paralegals or lawyers were brought in on an ad hoc basis to check contracts and company documents at specific intervals. Sips: “However, permanent supervision is needed to keep the supply of information up-to-date and to avoid backlogs and the associated risks. Companies often have difficulty finding people to perform these tasks, but they can be done perfectly adequately and securely by an external service provider. The essence of managed services is to offer companies a full-scope solution: to give them the reassurance that their legal records are always up to the mark.”
Getting a company's legal records up to the mark is also an extremely good way of complying with the new privacy laws (GDPR), which will come into force on 25 May this year. Sips: “Companies can no longer afford not to maintain a clear overview of their information flows. And it's logical when dealing with compliance-based issues such as corporate housekeeping and contract management to include privacy aspects at the same time and make sure you know what personal data is stored where. By working together, legal, risk, compliance and the business can then analyse how well-structured a company really is.”
Looking ahead to the next ten years, Sips also expects to see an increase in service provision to the legal profession itself. “Whereas before, we were seen as competitors, now our added value for law firms is much clearer, not just in preparing M&A or litigation processes, but also as suppliers of talent and smart software. The use of artificial intelligence by lawyers is growing rapidly, but for them it's not a core business, while we've been using it for years for contract and document intake, and for due diligence analyses. Smart AI applications can be programmed, for example, to extract the maximum information from a dataset and draw conclusions from it. Algorithms can be programmed to recognise specific patterns and gradually become smarter. A lot of preparation time is required to get everything fully programmed into the systems, but once they are up and running, the margin for error is much lower than if the work was done by people.”
And there are many more innovations in the offing. Automatic drafting of contracts, for example, which isn't yet widespread in the Netherlands, chiefly due to the small scale of many companies and the limited availability of applications in Dutch. Nevertheless, developments in this area are progressing rapidly and it is quite possible that in ten years' time the vast majority of legal contracts will be drafted automatically.
Another unstoppable trend is blockchain technology. The current method of storing contracts and having them checked by national and international institutions would benefit enormously from a different approach to international agreements based on blockchain technology. Many companies and offices still store their contracts on paper in filing cabinets, but once a blockchain method has been widely adopted, this form of storage will almost certainly become a thing of the past.
Van Daele: “It's difficult to believe that a mere ten years ago there was barely any software for the legal sector; only really for document management. We're now seeing some incredibly smart innovations coming onto the market, often a combination of intelligent search engines, data analysis and artificial intelligence. Although we don't develop software ourselves, we do work with software companies and in that respect we're the eyes and ears of companies and law firms when it comes to notifying them of the latest developments. After all, if you're not technically minded and you have to choose between the many service providers and programmes available, there's a considerable risk that you won't select what's right for you.”
Roos: “The realisation that you can, or perhaps must, do things differently is only now really filtering through to corporate legal departments and law firms. Innovation is not an empty slogan: people really are embracing these new developments. You can draw an analogy with e-cars: only a couple of years ago, they were a real novelty, yet today Frederike, Luc and I all drive one quite happily. The same is true of the legal sector: operational excellence has arrived and is here to stay.”
Roos, Van Daele and Sips therefore believe that the next decade will be characterised by more strong growth and the further expansion of Legadex's service package. Van Daele concludes: “We've grown from an ad hoc service provider in 2008 to a structural service provider in many different areas today. The fact that the legal sector itself is making greater use of our services is an indication that the market for alternative legal service providers is increasingly coming of age, including in the Netherlands. There's now a lot more choice in the legal market, and it's the clients who benefit.”
Luc van Daele (L) and Hans-Martijn Roos (R): Founders of Legadex.