Change of business models and relevance of IT for law firms

 

Peter Lederer is a former Partner of Baker & McKenzie. After seven years in Zurich, where he opened the firm’s office in 1960, he returned to New York, serving as the Senior Partner of that office until 1994. He also was General Counsel to Nuclear Electric Insurance Limited and Nuclear Mutual Limited. He furthermore acted as General Counsel for the establishment of Deloitte Touche Tohmatsu. Peter is a graduate of the University of Chicago Law School. He today is an Adjunct Professor, and a member of the Visiting Committee, at the University of Miami Law School where he supported the founding of LawWithoutWalls, a global venture preparing law school students for the challenges caused by the dynamic changes in the world of legal business. Peter was interviewed by Leo Staub.

 

Peter, you look back on a long and successful career both as a partner in a global law firm and as a General Counsel. Thus, you have an overview of many decades of business done in the legal world. Are the current developments as unique as a lot of people claim them to be?

 

I indeed believe that the legal world is currently in a period of significant change, if not at the beginning of a shift that will transform our „industry“ forever. Globalization and global sourcing practices of corporate clients force law firms to act truly global. Ever rising competition pushes companies to lower their cost, namely legal expenditures which have stayed untouched for a long time. This leads to the disaggregation of legal work done in the favor of corporate clients. Routine work is not necessarily bought from the law firm any more but from alternative legal services suppliers who do a good job and cost much less. Newest developments in technology, from communication and information technology to e-discovery and artificial intelligence, support this process of disaggregating legal services. Not every legal problem needs a lawyer to solve it. Sometimes it needs a paralegal, sometimes an educated business person, sometimes just a computer supported by a well-constructed data-base.

 

What does that mean for law firms?

 

Law firms will have to decide on the area of professional services they want to focus on. As soon as they are clearly aimed at a market position for example as a high-end law firm, a legal commodities provider, a boutique, or a mid-range full services law firm to corporate clients, they will have to adapt every part of their business model to their strategic market position. For some it may not be overly difficult, and it’s only “practice groups instead of warehouse”. Some may struggle a lot more, depending on the competition they face within their specific segment of the market. There will be an enormous premium on the ability to change – and to manage that change.

 

You have touched the topic of technology. LawWithoutWalls, of whom you are one of the founders, encourages law students from all over the world to conceive business ideas in the field of law based on a new technology. Could you elaborate on the importance of technology for legal services a bit more?

 

Not a lot of imagination is needed to see technology having a huge impact on legal services. It is not even a phenomenon that is very new! Quite some time ago people could already help themselves by means of a machine to create the forms necessary to submit the request for an uncontested divorce in court houses in the State of California. If I remember correctly the cost for the service described was no more than 10 USD. Today you see more and more people – and also companies – make use of online dispute resolution in order to get a quick and non-expensive decision in a not too complex conflict. Drafting contracts is often done by software called „document assembly“. I have been told that the results are stunning! At the 2013 LawWithoutWalls ConPosium at the University of Miami we saw a group of students presenting a project named “Super Market Law Firms”, the project heavily relied on innovative software solutions. I could go on forever. What I want to express is my strong opinion that technology will be very important as one of the main drivers for transformation of the market for legal services. The number of companies offering „alternative“ legal services grows every day. Some of them will be successful, some will fail. What is sure is that law as a business is just being „reinvented”, as Renée Newman Knake and Daniel Katz of Michigan State University put it.

 

If you had one chance to look into the future what is it that you most anxiously would want to know?

 

Well, in the aftermath of Enron, the decline of Andersen Legal, and the Sarbanes Oxley Act, we were all quite confident that the business model with large auditors operating law firms was gone for good. I am not so sure about that any more. The U.K. introduced its Legal Services Act 2007 and allows so called “Alternative Business Structures (ABS)” to offer legal services in a status similar to law firms. ABS may even be controlled by non-lawyer investors, and they are able to raise equity capital by issuing shares to the public. If you take all this into consideration it would not surprise me if sooner or later one of the large audit firms took over one of the global law firms and tried to form a huge and powerful ABS. That would be interesting to see. The impact, especially on the market segment of the midsized full services law firms, could be immense.