Technology has revolutionised industries from retail to communications and tourism, but despite lawyers embracing LinkedIn, the legal services industry is still relatively resistant to forming new client relationships online.
When it comes to choosing law firms for one off instructions or to pitch for a panel, General Counsel (GCs) at major international companies still overwhelmingly rely on personal networks and close contacts. A new Globality survey (Global Trends in Hiring Outside Counsel) of more than 300 GCs and senior in-house lawyers at businesses with over $1 billion in annual turnover found that 68% rely on their existing network of contacts to identify law firms to work with.
70% of respondent companies maintain at least one panel of preferred law firms and those with large in-house legal departments (of more than 200 lawyers) are especially unlikely to go off-panel, with 78% giving at least 40% of their matters to panel firms. When companies do look to identify other law firms to appoint, by far the biggest factor (selected by 44% of respondents) is whether they have a pre-existing relationship with that firm.
However, that’s not to say corporates are happy with the current state of affairs; there is an appetite for technology that can disrupt the market. 86% of survey respondents were excited by technologies for sourcing and communicating with legal providers outside of their immediate network. But as things stand, clients continue to default to BigLaw through their personal networks.
BigLaw may be an expensive luxury
Although it’s understandable that GCs want to work with people that they know and trust, companies could be missing out on the talent available at niche or boutique firms and, given the vast size of the contracts at stake, this is not good news for GCs who have to justify every pound spent to their CEOs. The old method of “choosing IBM” (that is, going for the least risky option of the firm with the gold-plated reputation) may now be an expensive luxury that few can afford given the fee inflation in large firms. In 2003, companies could instruct a partner at a leading UK commercial law firm for just under £500 but by 2016, according to research published by the Centre for Policy Studies, senior partners were charging in excess of £1,000 an hour.
As Ben Heineman Jr (former chief legal officer of GE) points out, the priority for larger law firms is to generate more revenue with fewer equity partners and to climb the league tables in profits per equity partner. This turns productivity upside down, essentially doing less with “more hours, more lawyers, more revenue per matter”; the exact opposite of the in-house legal department, which must do more with less.
According to a 2017 report, 65% of independent law firms expect to take business away from traditional firms over the next three to five years. However, although GCs may be keen to work with smaller firms, the pace of progress in connecting companies to these firms remains relatively slow, compared with other markets.
How artificial intelligence can help tip the balance
There are many examples of online platforms that have disrupted monopolies by giving a share of the market to individuals and smaller companies. For instance, Airbnb has allowed an ordinary citizen renting a room to compete with hotel chains, while eBay has empowered millions of cottage industries.
A real appetite for change now exists in the legal market and some of the more progressive in-house legal teams are developing their own networks of small to mid-sized law firms on a global basis. This has traditionally been a time-consuming exercise, but with the arrival of new technologies (such as artificial intelligence matching), in-house teams can quickly and efficiently find pre-vetted boutique law firms to partner with. This new technology can match GCs with service providers using a range of criteria, including:
- Sector expertise.
- Past clients.
- Cases and awards won.
It can even suggest that clients ask for specific partners who are recognised leaders in their field with experience relevant to the client’s particular matter.
Not only can the technology help match the right clients with the right people to the right providers in the right jurisdictions, it can help clients and law firms understand the best ways to communicate with one another and enable them to work together more effectively. A particularly exciting AI innovation is natural language processing of messages sent between clients and providers, which can provide insights into how clients and providers interact, and how they prefer to work. For example:
- Do they write long or short messages?
- How quickly do they respond?
- How often do they like to communicate?
- Who communicates first?
- At what time of day do clients or providers like to work?
Sentiment analysis of these interactions can also detect the emotions of both parties. If the technology finds that either the client or the law firm is showing signs of frustration or anger, it can offer practical guidance, such as suggesting that the issue could be resolved if they talk it through on a conference call.
If GCs decide to embrace this type of technology, it could fundamentally disrupt the legal market and allow small and mid-sized law firms to compete with BigLaw.