What do the individuals responsible for putting together the tech behind Lady Gaga’s concerts, a creative executive of ER and the developer of Reuters’ first-ever online financial products have in common? All three reinvented themselves as tech experts at top UK law firms. And you would be forgiven for wondering why on earth someone would make such a move.
‘Law has traditionally not been perceived as the place to find creative and innovative people,’ concedes Andrew Mcmanus, who was IT director at live events business The NEC Group before joining Eversheds in 2014. ‘But I’m not sure that’s the case anymore.’
Not convinced?
‘We are at a stage where opportunities from legal tech are growing exponentially,’ argues Nick Abrahams, who worked in Los Angeles at John Wells Productions and is now head of technology and innovation at Norton Rose Fulbright.
Mcmanus and Abrahams are not alone in their enthusiasm for the growing clout of tech teams at top City and international firms. Much has been made of a supposed golden age of legal tech in the Square Mile – unsurprising in an era in which Silicon Valley start-ups are supposedly taking over the world and technology jargon has infected corporate speak, irrespective of industry.
But there is more substance than just trumpeting new industry buzzwords. In their drive to cut down on legal spend in the post-Lehman era, clients have been putting pressure on firms to shake up their delivery processes or move away from hourly fees altogether. Meanwhile, technological progress over the last five years and the development of the legal artificial intelligence (AI) market over the last two has meant the tools available can do more and are easier to use.
‘The days when clients would only have dealt with lawyers will soon be over.’
Michael Bates, Clifford Chance
The result? The role of tech professionals at law firms now goes well beyond keeping the lights on: they are joining client pitches and being put nearer the heart of legal service delivery. ‘The days when clients would only have dealt with lawyers will soon be over,’ promises Clifford Chance (CC)’s UK managing partner Michael Bates.
Hardly a week goes by without a firm announcing its latest initiative, forming partnerships with AI providers or proclaiming a new competitive advantage thanks to a new addition to their tech arsenal, often in hyperbolic language. But with few hard metrics to gauge the effectiveness of much of this, the issue is that this area lends itself to brazen marketing waffle like few others.
As one partner puts it: ‘Most of the announcements are around the launch of a product. There is almost nothing around success stories, number of clients and revenue.’
With this in mind, Legal Business has surveyed the tech capabilities of the UK’s top 12 law firms by revenue and interviewed more than 40 lawyers, IT professionals, innovation heads, recruiters and start-up founders to test whether there is substance to the hype.
Switch on PCs
When it comes to salaries for tech professionals, firms have to account for a multiplication of the roles in this space. If asked to identify their top tech people, five years ago firms would have pointed to their chief technology officer or their head of IT. Today, the increasingly influential heads of innovation and legal service delivery are a part of the package, tasked with engaging lawyers to use tech on mandates, working with providers while keeping an eye on the start-up scene to make sure the firm does not miss out on the latest products. While traditional IT chiefs will normally command an annual salary between £250,000 and £350,000 at top firms, salaries for innovation heads would be considerably higher, averaging around £350,000 for the top 25 and in many cases including equity partners.
Some observe that the title of head of innovation is vague enough for it to be just another management role to give to older partners desperate to look busy as they approach retirement. However, this is also the role where real stars of legal tech are starting to appear.
The varied background of the people occupying tech-related roles at law firms is telling. While there is an effort to increasingly recruit people with an IT rather than legal background, attracting top talent remains tough when other businesses can offer equity and treat recruits as a big deal.
‘US firms embrace tech less as there is less pressure from their clients for fixed-fee arrangements.’
Eliot Benzecrit, Avvoka
‘The legal market is very hard to sell,’ says Nick Woolf of recruiting firm Sainty, Hird & Partners. ‘Even though they are investing, the perception is that law firms are behind other organisations but also not really interested.’
Integrating non-legal roles into partnerships also has its cultural challenges. ‘Many lawyers still think of IT professionals as those whose primary responsibility is to ensure their PC switches on in the morning when they arrive at work,’ says Tim Skipper, director of recruiting firm Totum.
And while technology heads increasingly report directly to managing partners, who typically are more progressive, the budget they are given is generally around 5% of their firm’s annual revenue – a sum that is supposed to cover everything from the computers in offices across global networks to the investment in AI. ‘I expect the number to evolve a bit: 4-6% alone won’t get you a huge amount of transformation,’ concedes Charlotte Baldwin, chief digital and technology officer at Freshfields Bruckhaus Deringer.
It would be easy to conclude that partnerships, ever worried about profitability, still struggle to see the value tech can add to their business. But there are reasons to believe things are slowly changing.
Start them up
Machine-learning contract analysis system Kira is now one of the most established AI products on the market, recently receiving $50m of private equity backing. When the Toronto-based company saw the first wave of big law firms sign up to its marquee product in 2016, it was primarily UK firms that came knocking.
CC was the first large player to sign up. DLA Piper, Freshfields, Allen & Overy (A&O) and Herbert Smith Freehills followed shortly afterwards.
Kira founder Noah Waisberg says it is mainly UK firms who tend to have ‘serious innovation teams’. He points to Freshfields’ Isabel Parker; CC’s Bas Boris Visser and Jeroen Plink; A&O’s Jonathan Brayne; and Hogan Lovells’ Stephen Allen: ‘US firms would have no-one comparable to them.’
Eliot Benzecrit, director of contract negotiation and analysis start-up Avvoka, echoes the point: ‘US firms embrace tech less as there is less pressure from their clients for fixed-fee arrangements.’
According to Waisberg, subscribed firms have between 200 and 1,000 registered users – not a bad number considering the specific function of the tool, although firms often concentrate the use of AI in low-cost centres.
‘You cease being relevant in tech unless you have a certain amount of businesses that you work with.’
Paul Stevens, CMS
While fee pressure from clients has pushed them towards such tools faster than their rivals across the pond, UK firms are also moving to keep legal tech start-ups close.
A&O’s incubator Fuse sees the firm host these businesses in its offices, giving them access to practising lawyers and clients to showcase their products. Slaughter and May will launch its own comparable incubator next year. The aim is for these firms to be ‘at the forefront of what’s going on in the tech space’, according to Brayne, although some dismiss these initiatives as marketing operations.
The wider market is even less impressed by firms investing directly in start-ups. Slaughters’ 5% stake in Luminance is said to be putting other firms off using the platform. Some also point to the fact that betting on one provider could distract firms from keeping an open mind about others: Slaughters remains the only firm in the top 12 to use Luminance on a large scale, alongside Eversheds Sutherland’s UK business. Most of the others, including Eversheds’ legacy US business, signed up to Kira. (The cheaper Luminance is said to be targeting the mid-market, although this is at odds with Slaughters’ premium brand.)
Ironically, a slightly looser route to keeping start-ups close has produced more concrete results. Launched by Olswang in 2015 and inherited by CMS’s UK business through the three-way merger with Nabarro in May 2017, CMS equIP sees the firm give legal advice to more than 60 start-ups through the so-called ‘golden hours’ system: a 50% discount on rates during a three-year period for advice from teams including corporate, intellectual property and tax.
The firm won mandates from programme member Apperio, when the fee transparency provider raised £7.5m in September, and RAVN when the document extraction business was acquired by iManage in May 2017.
‘You cease being relevant in tech unless you have a certain amount of businesses that you work with,’ says Paul Stevens, legacy Olswang’s former chief executive and now CMS executive partner.
Sell them out
The initiatives that by consensus are more likely to make an impact in the long term are those that see firms work with tech providers to develop their own tools.
Launched in 2001 and rebranded in 2015, A&O’s aosphere is a fully-owned, separate business developing and marketing 11 online subscription products covering financial institutions’ recurring legal and compliance queries around derivatives, data protection, marketing requirements and reporting requirements.
It employs 34 people, including 25 lawyers – on average 16 years’ qualified – and brings agile working to a new level: they generally work four days a week, mostly remotely. The lawyer running one of its products lives on a farm in Yorkshire and only visits London every couple of weeks. Aosphere provides the legal content, while tech businesses HighQ and Neota Logic build the platforms on which the products run.
Aosphere chief executive Marc-Henri Chamay is one of the most successful computer engineers to make a career in law. Formerly the global business manager of Reuters’ first ever web-based financial products in the 1990s, in 2009 he became the only non-lawyer to be given partnership-equivalent status (and remuneration) at the Magic Circle firm.
He says aosphere was borne out of the realisation that clients in the derivatives sector had complex but repetitive questions. ‘We decided to publish that information online and instead of charging on time, adopt a subscription model.’
CC has also launched its own separate, fully-owned tech business this year, Applied Solutions, recruiting back former alumnus and tech entrepreneur Jeroen Plink to lead it. And there are other examples of tools launched by firms in partnership with tech businesses on a standalone basis.
However, Chamay can point to something very few others have: results. Aosphere generated £11.7m in revenues and £3.3m in profits in 2017, up 16% and 35% on the previous year respectively. It has more than 430 banks and asset managers around the world as subscribers, adding about 70 each year with a renewal rate above 95%. It counted 30 referrals to parent firm A&O in the first half of 2018.
In total, A&O’s New Law operations, which draw heavily on tech, generate about £70m a year.
Both Chamay and CC client service solutions head, Oliver Campbell, agree that carving out a separate business to develop tech tools allows teams to do things that would be impossible within a law firm. ‘The legal profession has been structured in a way that is very focused on individual, bespoke mandates,’ says Chamay. ‘Recurring work requires different skills, platforms and is marketed in a different way.’
‘The legal profession is very focused on individual, bespoke mandates. Recurring work requires different skills and platforms.’
Marc-Henri Chamay, A&O
Campbell adds: ‘In innovation it’s about learning from failure as quickly as possible. For a law firm it’s the opposite, but if you apply that to innovation you are going nowhere.’
Not talking about a revolution
There is good news and bad news for the UK legal elite when it comes to tech. The good news is that firms are making some substantive moves and slowly increasing the level of investment.
The bad news is that they are making so much noise about it that often the most significant initiatives get lost in marketing.
Although A&O has gained a reputation for being ahead of peers, successful models are quickly replicable and any provider coming up with a product making firms more efficient is obviously keen to sell it to as many as possible. On the start-up side there is already some consolidation, with products like Kira adopted by a growing number of firms.
Yet when it comes to developing their own tech tools to sell clients, law firms have a new source of revenue that is worth exploring. The reason why initiatives like aosphere and Applied Solutions are worthy of attention is that by consensus there is a growing market for their products.
‘People think RegTech is going to be the next fintech,’ says Derek Southall, Gowling WLG’s innovation and digital head and founder of tech advisory business Hyperscale Group. ‘It’s going to be bigger.’
And law firms can make a distinct contribution that gives them a competitive advantage on other players: their legal knowledge. ‘Standardised doesn’t mean easy,’ insists Chamay. ‘When dealing with complex recurring issues, clients will want top law firms to do that. To automate a complex document or provide detailed legal guidance you need the best lawyers, and they are and will be working at a top law firm.’ LB
marco.cillario@legalease.co.uk
Knowledge is power: innovation within KM at law firms
‘Innovation is more process improvement than technology improvement,’ says Dave Pulice, director of practice innovation at Reed Smith. The distinction is an important one, with knowledge management (KM) being a longstanding component of client delivery for law firms, unlike the more recent vogue for flashy new tools. Leveraging knowledge, after all, is what law firms do.
But KM and technology have undoubtedly become interdependent, as increasingly capable tech enables greater accessibility to an ever-expanding repository of knowledge. KM roles have become more sophisticated and professionalised – long gone are the days of the librarian knowledge gatekeeper. However, for Ben McGuire, innovation and business change director at Simmons & Simmons, the key to both KM and technology adoption is focusing on process.
‘I am most impressed by those law firms doubling down on the boring stuff – focusing on the people-in-process aspects as well as the technology – and fostering a creative atmosphere.’
Simmons has made strides to modernise the firm’s practice and case management with KM software. Through Neota Logic’s knowledge automation system the firm launched Disputes Aviator, a tool designed to analyse and understand the implications of Brexit on existing contracts.
Meanwhile, cloud-based extranet systems further increase the availability of knowledge, while firms also use mobile apps to triage and evaluate ideas. Idea Drop is one such app, which can be found on the phone of every Eversheds Sutherland employee. Employees can generate their own ideas before platforming them in the app for evaluation. In theory, the cream rises to the top. The likelihood of a sustainable advantage for a firm being developed via an idea input into a mobile app is small, but such initiatives bring ideas and willing listeners closer together.
The challenges for knowledge, case and practice management have largely remained the same. Creating KM systems that are scalable and sustainable is a job no firm has truly pulled off. And if it were to be achieved through a clever combination of external tech providers eager to sell to everybody, any such development would be highly replicable.
However, there are emerging trends that could present new opportunities and challenges, with data becoming increasingly salient for law firms. In fact, specialist data analysts are expected by many to be the next phase in how legal treats knowledge.
‘This is the next big growth area. It is something people are talking about,’ says Nick Woolf, recruiter at Sainty, Hird & Partners. ‘When I talk to managing partners there are two things which bother them: one is diversity, the other is the harnessing of data. Particularly when there are mergers, they have no idea what they have.’
The measures of success for new forms of practice management and KM are hard to come by. Mishcon de Reya’s Mishcon Capacity – an internal resourcing application that allows a lawyer to assess how busy they will be over the coming weeks – addresses the pain point of associates wanting a fairer allocation of work. However, it would be hard to know precisely how impactful such an initiative would be on profitability, with the focus being more on a cultural dynamic than improving the hard numbers.
Moving forward, newer security-orientated concerns will come to the fore in conversations on how knowledge is managed and allocated. Haig Tyler, chief information officer at Herbert Smith Freehills, believes more information at law firms will be decamped to the cloud: ‘The next step over the next 12 months is to know the proportion of stuff you keep on the premises and what you move to the cloud,’ he says. ‘There is an immediate technology threshold that needs to be crossed before you can say: “OK, we’re going to adopt this.” Assurances of where the data will be held is the big one.’
For now, the professionalisation of KM roles as a distinct discipline demonstrates a new commitment to the concept at law firms. However, those occupying KM roles are the distributors rather than producers of knowledge in law. But with data analytics around the corner, KM could yet profoundly change law firm processes.