Here’s what’s actually happening, right now, with advanced technology in law firms, creating what ihave termed the ‘intangible law firm’:

• Kira Systems‘ machine-learning document review technology will be deployed by global law firms Clifford Chance and DLA Piper (as well as by Deloitte, for that matter).
• Another Canadian legal tech firm, IBM Watson-based ROSS Intelligence, has signed deals with American and international giants Latham, Dentons, and Baker & Hostetler.
• Norton Rose, Akerman, and Foley Lardner are among the firms using Neota Logic‘s applications to build client-facing expert systems.
• Venerable Wall Street firm Cadwalader has rolled out a high-powered dashboard that helps users navigate the financial regulatory landscape.
• And we have it on good authority that Bryan Cave is “miles ahead of everyone else” in this area.

This is only a recent sample of law firms’ technological commitments: consider Ron Friedmann’s Online Legal Services list for a more complete picture. And it’s not just happening in the US, either.

• Berwin Leighton Paisner is using “AI-type solutions to carry out standard legal processes hundreds of times faster than traditional methods that use painstaking human labour.”
• Mishcon de Reya’s new ten-year strategy includes a plan to “drive the automation of everything that can be automated, whether it’s legal or process,” including the establishment of  “an internal laboratory to vet artificial intelligence initiatives in a bid to make the firm an ‘early adopter for new technologies.’”
• Australia’s Gilbert & Tobin has filed several patent applications to cover new computer applications it has built: “Rather than take 20 hours, some tasks can now be done in two hours,” said a G+T partner.

Talking openly and on the record about eliminating billable hours in a law firm has traditionally been regarded either as heresy or a sign of mental instability. 

“Burn the witch” would also have been a standard response to a lawyer who advocated spending real money on anything that could be described as artificial intelligence. But the facts are what they are: major law firms are actually building systems to do some tasks that previously only lawyers could do, at the expense of some of the firm’s hourly-billed inventory.

But that’s not all. Law firms are also adapting to the emerging imperative of process improvement, finding ways to introduce efficiencies and enhance the quality of outcomes through better procedures and workflow systems.

• At Seyfarth Shaw, the process improvement gospel of Seyfarth Lean has become part of the firm’s core culture.
• Process is just as important as technology for Littler Mendelson programs such as CaseSmart and Compliance HR.
• Clifford Chance launched its Continuous Improvement program back in 2014 in a search for “the best approach to carrying out a piece of work.”
• Gowling WLG talks about its acquisition of expertise in “non-legal support components of service delivery” such as project management and pricing.

You can expect to hear more of this from law firms in future. “Something like 90 percent of the RFPs we receive ask us about our [legal project management] capabilities,” said one respondent to a Jomati Consulting survey. “We get RFPs that not only ask us if we do project management, but also our specific methodology, and how many matters we have under administration,” said another. This is not a temporal anomaly: law departments take process improvement seriously, and they expect outside counsel to do the same. Some law firms are outpacing their own clients in response.

These are all signs, to my way of thinking, of a fundamental shift in the nature of law firms. Specifically, law firms are changing from entities composed almost entirely of tangible assets to entities composed increasingly of intangible ones.

The conventional wisdom on law firms has always been that “all their assets walk out the door every night” — and that the firms could only hope those assets walked back in the next morning. Suppose they didn’t come back? Take the lawyers out of a law firm; what have you got left? Reams of documents, files, and transactions — but no one to read, write, or process them. Capable and professional support staff — but with no one to support. Libraries full of case law and regulation, shelves lined with texts and CLE binders, filing cabinets crammed with precedents — but nobody to apply legal skills and expertise to convert them into actionable outcomes of value to clients. The law firm machine would stand idle, because its engines had disappeared.

Just as importantly, all these non-lawyer assets differed hardly at all from firm to firm. Law libraries were mostly indistinguishable in their collections; precedents varied so little as to be virtually copies of one another; workflow and operational procedures were standard across almost every type of firm. The only features of a firm that could legitimately be said to be exceptional, standing out from other firms, were its individual lawyers. Many of them were pretty general-issue as well, to be sure, but most brought at least some unique value to the table, and a few brought an enormous amount. So in the absence of lawyers, law firms would be true commodities: offering basically the same thing to everyone in the market, bereft of any valuable distinction.

This state of affairs has contributed greatly to the individual lawyer’s longstanding dominance of law firm strategies, priorities, and practices. More than three years ago, I wrote about the existential battle inside every law firm between individual lawyers and the law firm as an enterprise — one that the enterprise has been losing since the day battle was first joined. Law firms continue their mad pursuit of lateral partner acquisition strategies, and go to absurd lengths to retain the services of highly skilled lawyers, because lawyers have always held such enormous importance to the firms’ survival and competitiveness. When your enterprise has only one type of asset of value to the market, you don’t own that asset — that asset owns you.

It seems to me that it’s precisely this state of affairs that all these foregoing efforts will change. What these law firms are building, through their investment in technology and processes and non-lawyer sources of value, are intangible assets. These assets can provide legal answers or deliver legal outcomes of value to clients in some circumstances, thereby giving firms a second type of option for serving those clients. But unlike lawyers, these assets won’t leave the office at the end of the day, and they don’t ask for raises or demand larger offices or threaten to join the firm down the street — they serve the firm, not themselves. By building these assets, firms give themselves leverage over their lawyers, and they’re going to use it. These are the new engines of the law firm machine. And they’re going to multiply with astonishing speed.

The role of these process and technology assets is not to replace lawyers — most of these resources require lawyers to program or monitor them on an ongoing basis — but to reduce lawyers’ indispensability to the firm. An “indispensable employee” sounds like a great idea, until you have one. I once managed an indispensable employee, and it didn’t take me long to realize that I needed to make him “dispensable” — for the good of the organization, and ultimately, for his own good as well. I trained other people in the work that he did and had them develop relationships with his key contacts. The point wasn’t to get to a place where I could fire him; it was to get to a place where, once he eventually left the organization for better things (as it was always clear he would do), the organization carried on and he could go without feeling guilty about leaving us in the lurch. Law firms need to make their lawyers more dispensable, for everyone’s good.

The other important goal that law firms accomplish by investing in intangible resources is to start building firm-specific assets. Littler’s CaseSmart system exists only at Littler, Seyfarth Lean is unique to Seyfarth, and so on. Other firms likely will create similar programs and systems in due course, but what they create won’t be exactly the same, and rightly so — these assets will be native to each firm’s culture and structure. Building firm-specific assets is about creating “a resource that will produce its highest economic value only within the specific firm,” Prof. William Henderson wrote last year. “If a lawyer leaves, the underlying resource remains, with the result that client loyalties flow primarily to the law firm, rather than the lawyer.”

This is a significant point. Partners will continue to leave law firms, perhaps taking junior lawyers and important clients with them; but they won’t be able to take these intangible assets along for the trip. And the existence of those assets, if they make lawyers’ work easier and firms more productive and their deliverables more valuable, might well prompt some of those juniors and some of those clients to stick around. The expertise that firms generate around these assets is specific to the firm and can’t be applied directly anywhere else, making retention easier and, eventually, making recruitment of talent and acquisition of clients easier as well.

The rise of the intangible law firm will be aided and abetted by more sophisticated law firm marketing and branding efforts, too. Traditionally, law firms often defaulted to lawyer-centred marketing: hire us, because we have all these great lawyers! Every time a firm promoted a star lawyer in its marketing material or trumpeted the poaching of a key partner from another firm, however, it was actually undermining its own institutional brand — it was giving clients yet another reason to say, “I hire the lawyer, not the firm.” The rise of intangible assets will strengthen firms’ efforts to market themselves as enterprises whose value and identities are independent of their lawyers. The goal is to have clients routinely say, “I hire the firm” — full stop.

I’m not saying that individual lawyers will soon be irrelevant to a law firm’s value proposition; this isn’t an either-or proposition. Firm-specific, technology-enabled, intangible assets aren’t an attack on lawyers; they’re a means to eliminate a long-standing, unhealthy imbalance in the relationship between the law firm as a commercial institution and the lawyers who deliver value inside it. The best lawyers, especially the immensely skilled ones on whose efforts clients bet their existence, will always be able to name their price and choose their platform. But that’s not the kind of work that’s going to dominate the legal market from now on. The dominant type of work will not be “bet the company,” but “run the company,” and the firms best positioned to win this work will be those with the kind of consistent, reliable, immovable, and uniquely valuable assets that clients can confidently count on.

Take a quick inventory of your own firm’s assets. How many are tangible and how many are intangible? How many walk out the door and how many stay overnight? And how prepared are you to compete for talent and business in a market where you can’t afford to let your lawyers walk, but your rivals can?

Because that’s the market that’s unfolding in front of us right now.

Author

Jordan Furlong is a leading analyst of the global legal market and forecaster of its future development. Law firms and legal organizations consult Jordan to better understand why the legal services environment is undergoing radical change, and they retain him to advise their lawyers how to build sustainable and competitive legal enterprises that can dominate the new market for legal services. You can contact Jordan at jordan@law21.ca.

Jordan published The intangible law firm on his blog on July 11, 2016. It is reproduced here with his permission.