Interview with Leo Staub, ES-HSG
Legal tech and trends on the legal market
Leo Staub, Titular Professor at the University of St.Gallen and Director of the University's "Law & Management" division at its Executive School, talks about actual trends and the role of legal tech in the legal market and how this will impact the lawyers' business.
Leo Staub was interviewed by Micha-Manuel Bues.
In their recently published book on The Future of the Professions, Richard and Daniel Susskind explain in detail that the legal profession will change rapidly in the next few years. Professor Staub, as an Academic Director of the Executive School of Management, Technology & Law of the University of St.Gallen, you are extremely well informed about trends in the legal industry. What trends and developments do you observe on the legal market?
Leo Staub: We can see five significant trends: (1) the globalisation of legal business, (2) a shift of market power from the supplier (lawyer) to the demander (companies), (3) a disaggregation of legal services, (4) the impact of new technologies and (5) the Generation Y coming of age as partners. Let me explain briefly what we mean by this:
In the course of the globalisation of the economy, more and more companies have started to break up their value-creation chains along a vertical axis. Suppliers of major companies are not only looked for on-shore but also off-shore. These suppliers are often small and medium-sized businesses. This also forces their lawyers - and this does not merely concern the big international law firms any longer - to deal with transnational legal problems. They, too, are being "globalised".
Increasing transparency on the market for legal services and the pressure to be efficient with corporate clients as a result of tightening competition in all industries have in recent years led to a situation whereby legal fees have come under pressure. Clients are less and less prepared to pay horrendous hourly rates for invoiced working hours. They demand discounts, cost caps, fixed fees or the law firm's sharing in the risk, and they enforce these ideas on the market with increasing success, often with the help of their procurement department. Unlike before, corporate clients have the upper hand on the market for legal services that are not situated at the absolute high end when it comes to negotiating terms and conditions for a mandate.
One possibility of completing mandates more efficiently - and this is where Richard Susskind did some pioneering work with his book on The End of Lawyers - is to divide legal work into different sub-processes. The criterion for such a division is the degree of professional expertise required for the completion of individual jobs. Whereas highly qualified work still has to be done by the best specialists, less demanding elements of a brief can be delegated to less qualified law firms or even to non-lawyers. This saves costs and may even lead to higher quality because increasing specialisation even by suppliers at the low end of the value-creation chain will naturally have a positive impact on the resulting work.
The enormous technological progress of the last few years has not only resulted in efficiency leaps in law firm administration: it is becoming increasingly clear that the lawyers' core activity of assessing the facts of the case, conducting legal research and analysis, but also finding legal solutions and communicating within the team and between the law firm and the clients has come under the influence of disruptive technologies. These technologies have the potential to subject law firms' business models to radical change, indeed to wreak havoc with them. Artificial intelligence and big data are only two catchphrases that characterise this development. Thought through to the end, they will lead to a situation whereby even highly qualified legal work will largely be computer-aided.
The last of the five big trends is Generation Y reaching the age when they are due to be promoted to partners in the law firm. Many of these young people are no longer prepared to accept legal work as the all-dominating force in how they organise their lives. They ask questions about the meaning of their work, place great value on spending time with their families, cultivate other interests besides their job, want to try out alternatives and options to working in the law firm and no longer accept tradition as an essential point of reference for their career plans. This also rocks the classic up-or-out principle of law firms.
In your experience, how do law firms and lawyers react to being confronted with the trends and developments you have described?
Like any other industry that is being affected by structural change: first the development is overlooked, then it is ignored and finally it is played down. When the structure-changing phenomena are taken seriously at last, the traditional market will try to move up the food chain. The air will get thinner and thinner. Finally there will be a big wave of consolidation. Those who have seen and anticipated the developments early on or at least have adapted to them quickly will be among the winners. The rest will disappear from the market. As far as the lawyer market is concerned, this development can already be seen very clearly in England, for example. Incidentally, the process I've just outlined was neatly described for the lawyers' market by recent research work by Clayton Christensen (Harvard).
In your view, what are the most important skills that a lawyer should learn or master in order to keep in pace with the trends and developments you have described?
We lawyers must be able to think strategically and strive for operational excellence. How do you develop a sustainable strategy or a working business model? How do you align the law firm completely with the market requirements and clients' needs? How do you employ state-of-the-art technologies for innovation and increased efficiency? How do you practise professional risk management? What key figures make for a close and foresighted observation of how the law firm is developing? And so on, and so forth. However, the partners' most important skill is likely to be genuine leadership in law firm management. This requires entrepreneurial know-how. But no one teaches us that in law school, so executive education is the order of the day! Those who stand still will be steam-rollered by the development towards structural change that has already started on our market.
Have you been able to observe that lawyers are increasingly occupying themselves with legal tech, i.e. the use of technology in law?
Only a very few are likely to do this, unfortunately! Of course there are great exceptions, particularly in the top market segment of the national and international "champions", but also in those law firms which devote themselves to the generation of legal commodities. It is notably in the segment of medium-sized law firms that only scant movement can be discerned with regard to technology. Yet it will be precisely those firms which are likely to come under most pressure when the market developments I have described advance further. But let me add something here: working with modern technology is not an end in itself. Every law firm must provide its own answer to the question of how it wants to position itself on the market, what the resulting risks and opportunities will be and what resources it wants to invest in the development and consolidation of its market position. Only when these questions are answered will the question concerning the sensible employment of technologies arise.
Why do you think that many lawyers are rather reluctant to use technology and that all in all, there are only a few innovations on the legal market?
Your observation is probably accurate for a majority of our market. We're sluggish when it comes to welcoming new things and adapting them to the purposes of the law firm. No wonder: our market was protected and not really exposed to competition for a long time. Also, the use of technology was never a talking point in our education and training. Besides, we're still doing quite well. The demand for legal services is on the increase and is currently still covering up many structural problems. How do you want to explain to a lawyer who is fully booked that he ought to develop his business model further and invest in innovation? However, ignoring the structural changes in our market is unlikely to go down well for very long...
Are universities able to bring about a change in mentality in this respect? You yourself are involved in the LawWithoutWalls project, which is about starting up a business with students which will solve an actually existing problem in the legal industry. Can you briefly outline your experiences with this project?
At the University of St.Gallen, business-administrative subjects have long been part of the curricula of degree courses in law. We are firmly convinced that economic knowledge is indispensable for the provision of legal advice in business law. LawWithoutWalls is only one of the many programmes that help us reach the goal of a practically relevant and economically oriented education for our law students. In LawWithoutWalls, students work out projects which focus on the use of modern technologies on the legal market. This programme also has a desirable spin-off benefit, namely working in groups with fellow students from all over the world and thus engaging in an exercise of transcultural interaction. LawWithoutWalls has turned into an extremely valuable part of our range of courses which is greatly appreciated by faculty and students alike.
Leo Staub is Associate Professor of Business Law and Legal Management at the University of St.Gallen. He is also one of the Directors of the Executive School of Management, Technology and Law of St.Gallen University, where he chairs the Law & Management division. He lectures and publishes in the area of the intersection between law and business. Before joining the St.Gallen faculty, he was a co-founder and senior partner of one of the top-ten law firms in Switzerland. Leo also serves as chairman or member of the board of directors of well-respected Swiss companies.
(Interview published on 20 December 2015 and available at http://legal-tech-blog.de/interview-prof-staub-legal-tech-trends-im-rechtsmarkt)