The age of uncertainty: facing the promise of a brave new world

The legal market is facing an era of change. Competition within the profession as well as the promise of deregulation is forcing law firms to adapt to a world where the client has the option to choose from a whole array of legal service providers. Christopher Davis, the founder of Davis & Co and chief executive of Lexfutura, discusses some of the key changes in the legal sector and their implication for the practice of law.

In the early years of the last century the Royal Navy, and the naval forces of other major seagoing nations, found themselves in what became known as ‘the age of uncertainty’. Through a combination of technological developments in armament and propulsion, coupled with the new fighting techniques of up and coming nations such as Japan and the United States, the traditional way of doing things came under challenge. It became obvious to all that momentous change was afoot, but for some time the shape of the new order was undefined. Then in 1905 the British Navy synthesised the changes in the air into HMS Dreadnought. She was the first of the new type of battleship, a concept that ruled the waves for another 50 years.

That same feeling of uncertainty has been hanging in the rarefied air of the world’s legal profession since around the turn of the millennium. The sweeping changes that have transformed various established information sectors, such as banking and insurance, are now being recognised as underway in the legal sector around the world.

The business re-engineering of the global legal sector is, although as yet in its infancy, a quantum shift that will transform the legal landscape, with new players operating on a radically different legal business model. The same political, economic and social changes that have been combining to shake-up the legal profession in England, the United States, Australia and New Zealand are also starting to have their effect on other business centres, such as Singapore, India and South Africa.

Lawyers are faced with both threats and opportunities in this environment. Smaller firms are faced with being overtaken by new high street entrants into legal services, such as banks, insurance companies and supermarkets. Larger firms are faced with new competition from foreign law firms. On the other hand, by partnering with these new players and/or by deploying internet technology, they can reach new markets, blend digital legal knowledge with legal advice, and partner with new channels to markets around the world.

This revolution also presents people around the globe with the possibility of access to affordable legal services, delivered through new cost-effective channels. Global best practice will gradually spread from leading jurisdictions through the use of legal workflow systems, improving the quality of legal advice internationally and levelling the difference between international and local firms, large and small law firms.

This article discusses two of the key areas of change, the entry of corporates and affinity groups into legal services and the globalisation of legal services.

1. Entry of corporations and others into legal services

Recently, in a multi-million pound deal, a UK media law firm Statham Gill Davies sold itself to Tenon, the AIM listed company. As English solicitors are not currently able to advise the public other than through the auspices of an authorised firm of solicitors, all of the lawyers in the firm are said to have surrendered their practising certificates as solicitors and joined their new corporate parent.

This is not unique. For instance, attorneys at Deloitte's in South Africa entered into this sort of arrangement some years ago.

The opening up of the legal sector to competition in England & Wales was prompted by a report in 2001 produced by the Office of Fair Trading, the UK government body responsible for the promotion of free competition. Legal services are one of the few industrial monopolies that have yet to be dismantled in the United Kingdom. As a result, the Law Society of England & Wales considered whether to permit employed solicitors to be free to advise the public. The Law Society adopted this in March 2002, with a change of legislation expected in 2004.

This will remove the monopoly of firms of solicitors to advise the public, thereby enabling corporates and other organisations to provide legal services using practising solicitors on their behalf. What's more, they will be free to provide the full range of legal services including areas of legal advisory work that are reserved to solicitors, such as conveyancing (held with licensed conveyancers), probate and litigation.

The Office of Fair Trading report has sparked interest among corporates in the provision of legal services. Non-qualified legal staff and solicitors or barristers not holding a practising certificate through any form of organisation can provide legal advice. Traditionally, legal buyers have been reluctant to obtain legal services other than through qualified legal firms, but this mindset has been altered by the market entry of online legal guidance providers during the last few years.

Now that the genie is out of the bottle, we can expect the next phase of entrants into the rapidly expanding legal marketplace to comprise heavyweight brand names from other industrial sectors.

They will include retail and affinity organisations with diverse brand associations. Indeed, any enterprise with sufficient brand loyalty and the potential for flexible brand association can unlock new revenue streams from legal services. An early entrant is Royal SunAlliance, who has established an online legal site supported by a team of 50 lawyers.

The power and fresh approach of corporations and affinity groups to the delivery of legal services can be expected to transform the legal marketplace. They have the resources to approach their customer base with familiar brand values to bring a legal offering to market that is innovative and appealing.

A key to this offering will be the use of online systems in conjunction with traditional ‘one-on-one’ advice. The appeal of online systems is the lower cost to legal buyers and improved margins to legal service providers they offer, particularly in price sensitive commodity work for private client work and small and medium enterprises. As these systems become increasingly intelligent, they will handle more and more legal work, reducing the need for so-called ‘human intervention’.

The points of presence for these electronic systems will include electronic legal kiosks for placement in non-law firm’s premises such as bank branches or supermarket spaces, the ubiquitous mobile telephone for WAP and GPRS access, personal digital assistants and, of course, the desktop computer. At the point of access, legal buyers will be able to:

Inform themselves on their area of legal activity, on a pay per view basis;
Build a legal document using an intelligent document assembly application;
Undertake other legal activity, such personal estate planning, a business compliance programme for their employment, health & safety or environmental affairs or commence litigation. These intelligent guidance systems will increasingly automate legal activity for individuals and enterprises alike, bringing down the costs of legal management;
Access a lawyer for advice, where more complex problem solving or advocacy is required.

The entry of corporates and affinity groups will open up new opportunities for lawyers, not only in the provision of one-on-one legal advice, but also in the development of content for legal systems, and the integration of these systems into larger organisations.

A range of relationships between lawyers and these new legal service providers will arise, such as tied law firms in the manner of the large accounting firms, associations between one or more law firms and the new entrant, franchises and employment (regulation permitting). Just as Boots the chemist employs pharmacists, dentists and doctors in high street clinics, so will other household names partner with lawyers to deliver legal services in new physical environments and online products through a range of electronic channels.

The removal of the legal profession's monopoly in England & Wales is likely to be followed elsewhere. For, as has been seen with the move of the accounting firms into legal services, new players with international spread will duplicate their model around the world.

2. Globalisation of legal services

The entry of the corporates and affinity groups into legal services is an additional step in a process that began with the globalisation of legal services, a process involving the harmonisation of legal practice.

As corporates have moved into new markets around the globe, their lawyers have followed them, putting pressure on local law firms to try and exclude the intruders or compete with them. The example of India, where local law firms are fettered by a maximum of 20 partners, tight restrictions on marketing and a prohibition on an internet presence are not untypical of an emerging market. Foreign law firms, especially from the United States and the United Kingdom, have established offices and associations with local firms. The local firms find it difficult to compete for the high value inward work.

This pattern is being repeated around the world, where the knowledge advantage of the large international law firms is a compelling argument for corporates to rely on the greater service consistency of these firms to provide best practice legal services wherever required. Global best practice has become a critical success factor in the winning of international work. Traditionally operated through training, the sheer size and complexity of modern legal practice now militates towards a law firm operating in the international field deploying legal workflow systems to standardise legal processes, share knowledge, and to ensure effective communication and coordination. This last collaborative element is becoming more important to clients, who wish their own personnel to be integrated with their lawyers and other advisers on transactions.

Legal workflow systems have therefore become an issue for international law firms and local firms alike. A legal workflow system is ideally a browser-based application [1] that allows knowledge workers to gain access to, collaborate with, make decisions, and take action on a wide range of information regardless of the user’s virtual location, the location of the information, or the format in which the information is stored. It is the next generation of the online dealroom, operating as an internal workflow system that is used by the legal service provider on a day-to-day basis, with aspects of it opened up to clients and fellow advisers as required for a shared workflow environment.

A legal workflow system can be treated as an internal system or opened up to external parties, such as clients and fellow advisers. It is therefore both an intranet and an extranet [2]. Legal workflow systems are particularly helpful where people inside and outside the organisation are working in concert as a virtual team.

New career paths for lawyers

As the corporatisation of legal services is spread by globalisation around the world, the traditional model for delivering legal services will be subjected to ongoing change. The small law firm is likely to be affected at an early stage, in similar fashion to the small chemist, hardware store and optometrist in the face of larger providers. However, new opportunities will arise with the new larger producers and retailers of legal services and products, who will require the services of skilled professionals.

The traditional activity of lawyers as individual craftsmen (or is it ‘craftspeople’ now?) in preparing and delivering legal advice, will be streamed into a range of potential roles. For instance, instead of being a ‘one-on-one’ adviser, a lawyer may choose to become a legal knowledge engineer. We are already seeing increasing numbers of professional support lawyers in the larger law firms, who are the forerunners of this new breed of lawyer who couples legal knowledge with skills in the development of information systems.

An allied activity will be that of legal content provider, developing content for electronic systems. This goes beyond the traditional hardcopy textbook to the development of legal process for individual types of legal activity, processes that are deployed in legal systems that guide clients or their lawyers.

Conclusion: disruption to the traditional legal practice model

The drivers for change in the global legal sector are already resulting in disruption to the traditional model, with a shift in the activities of the existing suppliers to the legal marketplace. Legal publishers, legal solution providers and market makers are entering more directly into the legal value chain, particularly with digital content for online systems.

Another key wave of entrants are the new channels to market, such as banks, insurance companies and supermarkets. Their strategic marketing skills from other industrial sectors coupled with new e-business models will see new legal products and services emerging, with considerable experimentation for some time to come.

The alliance of the legal profession with organisations that develop new products and services, and others that offer new channels to market will create new demand for a broader range of legal services and products that will be delivered through a variety of delivery mechanisms, from video kiosks to mobile telephones. This will open up new opportunities for lawyers, not only in the provision of ‘one-on-one’ legal advice, but also in the development of systems and content for them.

With their intimate knowledge of the legal sector, the legal profession has the opportunity to synthesise the current changes in the air and fashion them into a new legal business model that benefits existing players, new entrants and the legal buyer. It has the hallmark of an exciting challenge.

Christopher Davis is joint CEO of Lexfutura and founder of Davis & Co. He was formerly head of due diligence at McKenna & Co (now CMS Cameron McKenna). He can be contacted at cdavis@lexfutura.com.

[1] A browser-based application means that individual users need not hold the various applications sourced through the legal workflow system on their hard-drive, but through their web-browers. It therefore offers immediate ‘plug and play’ use