Legal Innovation starts here
We live in an era of innovation and technology change reshaping the whole infrastructure of society. But where is innovation and change happening among business lawyers? The legal industry is still dominated by two main groups - the traditional law firms and the in-house legal counsels employed by the large corporations. As of today, we have not seen a lot of innovation coming out from these groups. Quality and high performance – yes. Innovative products and services - less. Perhaps not surprising as the main driver of most traditional law firms is hardly playing the innovative long-term game of value creation but rather maximizing yearly profits and the inhouse legal teams constantly struggling to do more with less. As being a previous in-house counsel myself, I know how hard it is to turn your ambitious improvement ideas into reality when dealing with the daily pressures from the business.
For the last ten years alternative players have been advancing into the field of business law – the alternative legal services providers (ALSPs) and the legal tech companies. These players are aiming to transform the industry by technology, new business models and shifting from a high performance to a growth and innovation-mindset, a road less travelled in legal - paved with both challenges and opportunities.
In a recent survey in Australia (The Legal Innovation Report 2019 the two biggest obstacles in driving legal innovation were not surprisingly found as “Getting enough time and resources away from Business as usual” and “Upskilling teams and improving processes”. If you have a management team with focus on annual dividends to the partner collective and lawyers trained to play it safe with no time and resources for driving change projects, you should not expect a lot of innovation coming out from the organization. If you measure and reward people on billing hours you will get billed hours, not innovative products and services. As result, you will often meet a general organizational bias for status quo that can make innovation and change a challenge. Something fundamental needs to be changed to traditional legal organizations before innovation will happen. They need to create a culture of innovation. The question is how that is achieved?
Among the inhouse counsels, the situation is similar where “Doing more with less” is by far the biggest organizational challenge year by year as shown by Nordic General Counsel report by ALTNordic. The workload is driven by increased regulation in combination with increased complexity of the business. It is the classical catch 22. You are too busy to have time to drive your improvement and efficiency projects that will free up time to focus on the strategic and important matters. And it is of course not a fertile ground to grow innovations.
At the same time the opportunities are massive. There is for example a huge potential to automate a lot of the typical tasks of an in-house or law firm lawyer. A large part of lawyer’s work is about analyzing data, semantics, logic and procedures. This tasks that computers generally do much better than humans. However, we are lucky that humans do other things much better than computers (at least currently) such as strategy, creativity, empathy and collaboration. The combination of both, human and machine, is the winning concept as I see it.
The opportunities to develop new tools that help clients to solve legal issues and lawyers to be able to become much more powerful and effective cannot be over-stated. Personally, I think we are just in the beginning of this journey. Here are a couple of signs of the new era:
While there is no burning platform yet for the traditional players in the legal industry, there are new players with new business models advancing, like Axiom, Elevate, United Lex, Radiant and also the Big4 with massive resources and also an appetite for investments (note E&Y acquisition of Riverview Law’s technology based legal services business). start-ups with smart technologies replacing a lot of the classical artisanal legal work, for example creating and reviewing legal documents. Presently 1207 legal tech companies are currently listed in Standfords CodeX legal tech index and the numbers are growing steadily year by year.
You will find legal tech events around the world attracting lawyers, students, coders, investors and others. The annual tech event LegalWorks is running in Stockholm, Nordic Legal Tech Day, has almost doubled its visitors each time the last 4 yours. This year Nordic Legal Tech Day had more than 25 tech companies meeting up for one day together with lawyers, investors and tech people. In UK LegalGeek has 2000 visitors to their conferences.
The total investment into legal tech has been growing dramatically the last ten years. In 2018 the total investments into legal tech reached 1 billion USD (according to Investec). That is a fairly big number and important to fuel further innovation.
Technology has become so much better and affordable the last 10 years. In the 1990s a contract data base project for a company could have a six digit budget expanding over several years. Today you can buy a cloud-based contract management tool doing more or less them same job for 39 USD a month and implement it the next day.
So, in some parts of the legal industry innovation seems to be flourishing and money is finding its way to the inventions.
Culture of innovation
Innovations does not happen in a vacuum. So how do you create a culture of innovation in a legal environment?
Dr Waguish Ishak has spent a lot of thinking on how to create a culture of innovation as a R&D chief in Silicon Valley for 40 years. In his report for McKinsey Quarterly he points out that “No culture can be innovative without great people” and that you need to find the people with the right mindset. “These are people who want to solve problems that matter and take the from invention to final product”. This sounds like a pretty sound advice and for the legal industry it means that you may need to recruit a different kind of talent, screening for different skills and traits than what you are used to.
Having great lawyers with a passion for solving problems is a good start. You need to understand the law to be able to automate it. But not less important is having skilled project leaders and technologists on the team. Then there is the missing link: How can you take the law and structure it into code? Is it even possible with all the “if’s” and “but’s” of the law? This I believe is the biggest challenge when it comes to legal innovation. Very few understand both law and technology, but there are lawyers that are system thinkers and can see the patterns behind the lawyers often intuitive and experience-based methods. Make sure you start recruiting them and then add technologists that are open to learn a bit about the law.
Last year LegalWorks got a public grant to develop a corporate administrative tool together with the blockchain company Chromaway. I was positively surprised how quickly the technologist got behind the lawyers “it depends”-answers we gave them and systemized the different options in a logical structure that can be turned in to code and algorithms. Lawyers and technologists need to work together and the technologists should not be afraid to take the lead in the development, since they generally have better project management skills than lawyers who may tend to focus on detail and avoiding mistakes rather than progressing the project.
A key take-away is that you need to recruit the right team, which likely is different from the team you normally have in your legal organization. You need both lawyers that are passionate about solving problems that matters and technologist helping them to turn ideas into code.
In order to create a culture of innovation the legal industry can learn a lot from start-ups. For example, to be prepared to take risk and face a failure. Many legal professionals are from the very beginning taught a fear of making mistakes and errors together with developing a risk avert mindset. Meanwhile recent organizational psychology research and studies likes Googles Project Aristotle show that the hallmark of innovative teams is psychological safety meaning that team members feel safe to take risks and be vulnerable in front of each other. Failure must be an option in your organization if you want your staff to develop new innovative products and services. Is that values you promote in your organization?
Another thing you can learn from start-ups is to be prepared to spend a lot of money without any guarantees on return of investment. Investments in technology are long-term and there is always a tech risk attached to it. You will need a significant R&D budget if you want to see your innovative ideas turn into reality.
So all in all, there is no surprise that the legal industry has been slow to technological change considering the modus operandi of the legal departments and law firms. If the traditional players will change its ways of working into a more innovative path remains to be seen. If not, there will be others driving the changes in the industry.
About the Author
Ulf Lindén is a senior legal and management professional and entrepreneur with experience from in-house law departments in large international companies, law firms and consulting business. After eight years at a law firm, Ulf went in-house to become a corporate lawyer. For 14 years, he was leading the Swedish legal teams for companies like Pharmacia and GE Healthcare. In 2015 he founded LegalWorks with Leif Frykman.