As I have mentioned before, one barrier to law firm innovation is the failure of clients to demand it. If a new OpenText survey is any indication, though, that may be changing.

 

OpenText is an enterprise information management (EIM) business. Among other things, it offers a variety of eDiscovery tools to law firms and companies. It recently released the results of a third annual survey directed at the eDiscovery practices of large corporations.

 

The critical take way: in house legal departments are consolidating their eDiscovery providers. Meaning that law firms no longer have free rein to decide who the eDiscovery provider will be in any given matter.

 

That may not sound all that innovative or significant. But as mentioned in Mary O’Carroll’s recent keynote on which I recently reported, law firms are less and less the central player in the legal realm. Instead, they are becoming part of an overall ecosystem controlled more by in house legal than themselves.

 

Here are some details of the survey, the results of which were released on February 7 of this year. It was conducted between July 9, 2019, and August 15, 2019, by Ari Kaplan Advisors. (Vendor surveys are often criticized, some rightfully so, as designed to show just what the vendor wants to confirm. I know Ari Kaplan, though. He’s a straight shooter who calls it as he sees it.) Kaplan interviewed 35 legal ops leaders from a variety of corporations. Most of these corporations had annual revenues over $10 billion and over 10,000 employees. The survey asked about law department innovation, the influence of legal operations, the use of the cloud, audits of outside counsel’s technological competency, and the use of artificial intelligence (AI). It also queried the participants about the use of alternative legal services, data management and approaches to document review.

 

Some key findings:

 

• 62% of the respondents say their departments are innovative and becoming increasingly so all the time.
• 71% of the respondents say they consolidate their eDiscovery vendors. Only 43% reported consolidation efforts in 2015.
• 51% say they have no plans to audit the technological competency of outside counsel. This sounds like a lot. But as recently as last year, some 80% of the respondents had no such plans.
• 80% say they use the cloud for a variety of legal needs. This percentage has roughly stayed the same over several years, probably due to heightened security concerns.

 

While I was at LegalWeek earlier this year, I got to talk about the results of the survey with Adam Kuhn, a Principal Solution Consultant at OpenText. I’ve known Adam for a while and find him one of the more interesting and insightful people in the EIM space. When you talk to Adam, though, it’s easy to get sidetracked and talk about Adam’s main hobby. He’s a race car driver! (He and I spent a fair amount of time discussing the accuracy of the portrayals in the movie Ford v. Ferrari, which we both like. Adam thought it was an accurate portrayal of auto racing and the auto racing world.

 

Clients are taking more control of eDiscovery and the overall eDiscovery process

 

Adam agreed that its significant that some 71% of the respondents say they consolidate eDiscovery providers. He told me that like me, he thinks this indicates clients are taking more control of eDiscovery and the overall eDiscovery process. He added that in house departments are also in sourcing more eDiscovery work and then just shipping the results to outside counsel. Many in house counsel believe they can get a better and faster result this way.

 

These efforts are borne out by more specific survey results:

 

• 77% of the respondents contract directly with eDiscovery vendors,
• 74% control which eDiscovery vendors their outside counsel uses,
• 71% have adopted a centralized approach to managing eDiscovery data and
• 42% have adopted a single-vendor model.

 

And the increased use of auditing also suggests clients are getting more proactive and controlling of their outside firms and demanding more technological competence and efficiency.

 

What happens in the eDiscovery world is important because it often foreshadows a change in the overall legal profession. That clients are getting more demanding and rigorous in the management of the eDiscovery process likely means the imposition of similar discipline across the board for all sorts of corporate legal services. This new discipline will force law firms to accept and endorse change if they want to be competitive.

 

And there’s nothing like a little competition to force wholesale change.

 

 

 

 

 

 

 

And you still can hear me singing
To the people who don’t listen
To the things that I am saying
Praying someone’s gonna hear
And I guess I’ll die explaining how
The things that they complain about
Are things they could be changing
Hoping someone’s gonna care

Kris Kristofferson, To Beat the Devil

Is the legal world really changing, or are we all still just talking about change?

 

Last week, for the first time in a couple of years, I attended the ABA TechShow in Chicago. It’s one of my favorite legal tech shows. Since its geared more toward smaller firms and solo lawyers, there is less high-power selling like, say at LegalWeek. This creates space for more substantive discussions and learning from vendors. That was certainly the case this year. The show featured multiple substantive tracks, over 2000 attendees, countless exhibitors, a start-up competition, and even a silent disco.

The keynote this year was given by Mary Shen O’Carroll. O’Carroll is the Director of Legal Operations at Google and President of the Corporate Legal Operations Consortium (CLOC). A legal ops evangelist, O’Carroll is one of the more astute observers of the legal marketplace, particularly at the larger firm level. Because of her dual role, she sees firsthand happening at law firms and in-house legal departments. So, when she talks, most of us listen.

 

O’Carroll believes the legal marketplace is or is on the cusp of fundamental change. In her Keynote she presented the case that the legal innovation glass is indeed half full and getting fuller all the time. To those of us in the space, we desperately want to believe this.

 

O’Carroll claimed in her Keynote there are three trends that evidence fundamental change.

 

First, she noted a fundamental change in the culture and mindset in the legal marketplace toward innovation. Says O’Carroll: “innovation, not tradition will soon be the norm.”

 

Second, she noted that the role and expectations of in-house counsel are fundamentally changing. In house counsel are expected to become more and more embedded in business leadership. They are increasingly considered an integral part of the overall business. They are more accountable than ever to business leadership. In house legal is no longer just the department of “no.”

Third, O’Carroll talked about the changing role of the law firm. She claims we are moving from “the age of law firms to the age of ecosystem.” Law firms can no longer count on being the sole or even primary player in any legal matter. Instead, law firms are part of collaborative teams of lawyers, businesspeople, and alternative legal service providers (ASLP). These players are expected to work together to get a better, faster, and more economical result for the client.

 

O’Carroll claims the law firms’ response to this change falls into three buckets: some are deniers (profits are up, “no problem here). Some are self-professed experimenters (“let’s try some small innovation projects so we can check that off the list and say we are innovative”). And some–the ones who invest in tech, use the power of analytics and are focused on being more collaborative–are the committed.

 

(By the way. O’Carroll bluntly assessed the potential impact of the big four on the new ecosystem. O’Carroll believes, “When the big four comes in, all the advantages of reputation law firms have will be gone.” Notice she said when not if).

 

No one really knows for sure what’s going on in the legal marketplace

 

O’Carroll’s remarks were enthusiastically received and applauded as you might expect at a legal tech show. And it all sounds good and right. It’s tempting to drink the kool-aid.

 

But…as Dan Linna pointed out to me at LegalWeek, no one really knows for sure what’s going on in the legal marketplace. Its hard to know how much things are changing, particularly at the law firm level. There’s precious little hard data instead of anecdotal evidence and intuitive observation. (It’s a bit ironic to hear a high-level Google employee—even one as experienced and knowledgeable as O’Carroll–talk about what’s happening without relying on supporting data).

 

And even if there was data from law firms, who knows how valid it would be. Lawyers are good at manipulating survey answers to make themselves sound innovative when they aren’t. The only people who know what’s happening within law firms are the equity partners. And most of the time they ain’t talking.

 

In the absence of data, its important to remember fundamental barriers to legal change still exist today, just like they did 30 years ago.

 

So in the absence of data, its important to remember fundamental barriers to legal change still exist today, just like they did 30 years ago.

 

First, for most lawyers, at least in larger firms, the business model is the billable hour. This model is not partially user-friendly to innovation and technology that would result in reduced hours. The problem is the model is still working all to well. A recent Citi Bank Survey, for example, found, 2019 was a year of solid growth for the legal industry, that revenue growth exceeded expense increases and that rate increases were the strongest since 2008. Meanwhile, demand growth continued to accelerate as the year progressed.” As Richard Susskind famously observed many years ago: it’s hard to tell a room full of millionaires, their business model is broken.

 

Relatedly, other than a few in house departments, such as those at Google, DHL, or Microsoft, many clients still aren’t demanding fundamental change. Even O’Carroll recognizes, “it’s hard to overestimate how much tradition and conservative thinking there is in legal.”

 

But finally, and most important, current regulatory rules work against wholesale change at the law firm level. Despite some movement, most U.S. jurisdictions bar non-lawyer ownership and investment in law firms. This rule has three significant impacts on innovation. First, it limits how far professionals who don’t have law degrees can advance in law firms. It takes business and technology talent to drive innovation and change in business.

 

But law firms can’t offer stock options or ownership to these professionals. Not only does this tie the hands of law firms from competing for the best talent, it practically limits the clout these professionals have within the firm. And finally, it deprives many firms of needed capital to seek and try innovation and change. In very large firms, the costs of innovation initiatives can be spread so widely that the impact on any partner is small. Not so in smaller firms. The cost impact can be direct and sizable. This fact discourages partners from voting for and accepting change.

 

To top it off, the profession is bitterly divided on non-lawyer firm ownership, which means changing the rules won’t be easy.

 

To top it off, the profession is bitterly divided on non-lawyer firm ownership, which means changing the rules won’t be easy.

 

So again, in the absence of good data, let’s not go to far in patting ourselves on the back and concluding our work is done.  So let’s keep talking about and pushing for change. Let’s keep hoping someone’s going to care.

 

Photo Attribution

Photo by Ross Findon on Unsplash

 

 

 

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