Law’s Tipping Point Is About Digital Transformation, Customers, And Capital—Not Firm Partners
Thomson Reuters and Georgetown Law recently released their 2021 Report On The State of The Legal Industry (“The Report”). This year’s edition provides a law firm-centric, data and graph-filled analysis of the industry’s past “extraordinary” year. The Report channels Malcom Gladwell’s “The Tipping Point,” positing the legal industry may have reached its own moment where change is no longer slow and steady but “happens more like an epidemic.” It cites a softening of partner resistance to change as the principal reason for a legal tipping point that will produce “a significant redesign of our legal delivery systems—including law firms.”
The Report reaches the correct conclusion, but its attribution is misplaced.
Law Is Embarking Upon The Corporate Digital Transformation Journey
Law’s tipping point is not the result of a collective partner epiphany— even if one were to occur. Nor is it caused by- or even about- lawyers. The industry’s accelerating metamorphosis is catalyzed by and focused on customers. Digital transformation has become an existential imperative of corporate viability. Only a handful of legal functions have joined in those journeys, but that’s changing. The C-Suite is mandating it.
The legal function will soon be integrated not only with other risk mitigation functions but also with business units across the enterprise. Legal has a significant but underutilized role in advancing corporate digital transformation, the end-result of which is value creation and enhanced customer experience. The legal function, like technology, is no longer a vertical; it affects every facet of business.
Legal can no longer operate as an insular, self-contained department; it must function as a proactive, data-driven, integrated pan-enterprise AAXN , holistic risk mitigating, agile business unit. This applies not only to the corporate legal team but also to its external resources. The legal function’s contributions to the company and its customers must extend well beyond legal advice. This requires a re-imagination of its purpose from the enterprise and customer perspectives.
MORE FOR YOU
Technology Enables Change; Human Behavior Is Its Governor
Technology enables change, but human behavior and the willingness to embrace new ways of doing things make it a reality. Erik Brynjolfsson, the eminent Stanford economist and digital transformation scholar, told me during a recent interview that technology is twenty years ahead of human capacity to optimize its use. The real digital challenge, according to Brynjolfsson, is cultural. It’s not technology, tools, or processes that are holding back innovation—it’s people.
Change resistance and the management challenges it presents run especially high among lawyers. Most retain the myopic mindset of “lawyers and ‘non-lawyers,’” an anachronistic remnant of the legal guild. A reboot of legal culture is necessary to unlock the industry’s latent potential to better serve clients, customers, those in need of legal products and services, and society. The legal change process need not be led by the legal establishment (law schools, firms, courts, regulators, etc.). It is likely to come from without the profession. Collaboration, teamwork, emotional intelligence, cultural awareness, curiosity, learning-for-life, agility, adaptability, and a customer-first mindset are some of the new requisites for legal professionals in the digital age.
Paradoxically, less practice and more automated, self-help, AI and data-enabled legal delivery will advance the interests of both legal providers and consumers. Legal practice will be required only when differentiated skills, experience, expertise, and judgment are required. Law will be more skill and less practice for most lawyers. The practice jobs that vanish will be replaced by new ones that require legal knowledge and augmented skills (e.g. data analytics, design thinking, business and technological expertise, etc.). This will necessitate adjustment and up-skilling for lawyers. Those that adapt will be rewarded by a heightened sense of purpose, a wide range of career paths, and flexibility. Legal consumers will be benefit from a fit-for-purpose legal function.
The Digital Imperative For Business Is Law’s Mandate, Too
Business is reverse-engineering itself from the customer perspective. How can it provide customers greater access, choice, efficiency, transparency, access to data, cost-effectiveness, on-demand delivery, and customized end-to-end experience? The legal function must be a part of this process. To do so it must ask, then answer, the same litany of questions that other business units do. Multiple studies tie digital success to enterprise-wide, cross-functional adoption of digital principles and the integrated pursuit of corporate purpose. That’s why the C-Suite is revoking law’s digital immunity and redefining its purpose, role, and remit,
Law’s tipping point is its transition from lawyer-centricity to customer-focus. This involves a series of shifts that include: lawyers-only to multidisciplinary and cross-functional collaboration; reactive to proactive; gut to data; homogeneous to diverse workforces; input to output; hierarchical to flat organizational structures, bespoke, labor intensive to automated, AI-assisted solutions; legal advice to business solutions; inward-facing law guild to customer-centric solutions collaborator.
Capital Is Backing Companies Supporting Law’s Digital Mandate
The investment community’s interest in the legal space has increased dramatically in recent years. The rapidly expanding growth of tech and data-enabled new-model legal providers (a/k/a “ALSP’s”), disaggregation, market recognition of the distinction between the practice of law and the business of delivering legal services, and the nascent migration of multidisciplinary talent to legal have piqued investment interest.
Investors see the opportunity to transform the legal sector from a fragmented, balkanized lawyer-dominated guild to a consolidated, tech-enabled, data-backed platform-driven marketplace. The legal industry’s size, steady growth, absence of dominant providers; amenability to consolidation; languid adoption of technology; potential to scale; and an enormous, unserved and under-served individual and SME market segment (“retail law”) are also enticing to investors.
As the industry morphs from practice to product and labor-intensity to tech-efficiency, the ability to scale creates an opportunity for investors, business and tech-savvy providers, and customers. LegalZoom is a case-in-point. The company provides online and compliance services for businesses and has formed 10% of new LLC’s and 5% of new corporations in 2020 while launching 378,000 new businesses during that period. It also helped create 250,00 estate plan documents last year while garnering a high net promoter score from its approximately 10m customers. LegalZoom, the first new-model legal Unicorn, has put its approximately $1B of aggregate investment capital to good use. It has achieved significant market share in law’s retail segment, a harbinger for the corporate legal market.
A 2021 Gartner Report projects law’s accelerating transition from lawyer and labor-centricity to tech-enabled scalability. Here are some highlights:
· By 2025, legal departments will increase their spend on technology threefold.
· By 2024, legal departments will replace 20% of generalist lawyers with nonlawyer staff.
· By 2024, legal departments will have automated 50% of legal work related to major corporate transactions.
· By 2025 at least 25% of spending on corporate legal applications will go to non-specialist technology
Artificial Lawyer queries whether legal tech has come of age. It cites four indicators in support: (1) major corporations buying legal tech (DocuSign’s acquisitions of Seal Software and Clause); (2) a spate of high valuations and large funding rounds (Clio’s $110M raise at a $1.6B valuation, among other frothy valuations); (3) platforms and an enterprise mindset—legal tech servicing not only the legal function but also the enterprise and industries; and (4) IPO’s (Legal Zoom and Intapp have recently announced the intention to float). This persuasive case is buttressed by recent forays into legal by Amazon AMZN , Microsoft MSFT , and Salesforce CRM .
This year has already produced a spate of big-dollar investment activity in the legal space . It has been sparked by the above-cited favorable market conditions, pandemic-produced acceleration of business digital transformation, and the resultant imperative that legal participate in the corporate transformation journey.
Here is a sampling of recent deals.
GI Partners, a private investment firm, sold Consilio, the eDiscovery software and services company, to investment funds managed by Stone Point Capital LLC. GI Partners acquired Consilio in 2018 and invested heavily in the company during its ownership. Consilio is now a global leader in eDiscovery, document review, risk management and legal consulting services, having merged with two other eDiscovery companies acquired by GI partners, Advanced Discovery and DiscoverReady. Stone Point has entered into an agreement to acquire Xact Data Discovery, an international provider of eDiscovery, data management and managed review services. This will further enhance Consilio’s reach and, no doubt, encourage further market consolidation.
Evisort, an AI-supported contract management platform, received $35m in funding from global growth equity investor General Atlantic. The transaction followed a stellar year for Evisort, with 4x revenue growth. This is not the largest deal in dollar value, but General Atlantic, known for funding “highly differentiated” technology, spotted a shift from paper-based contracting to digital transactions and acted on it.
Bryter, a Berlin-based AI-backed no-code provider, closed a Series B of $66 million. The capital will be invested into its platform and North American expansion. Bryter launched just a few years ago and has already built platforms used by 100 global enterprises across some 2,000 business applications and workflows.
UnitedLex, a legal technology and legal services company focused on facilitating the digital transformation of the legal function, has been turbocharged by CVC’s $500m investment. It has enabled UnitedLex (among a handful of providers) to hire elite senior talent from leading technology, business, and consulting companies. It has also funded development of Vantage, an Enterprise Legal Platform (ELP) designed to provide end-to-end integration between business and the legal function. Vantage is built on the Microsoft Azure platform and is available on The Azure Marketplace, an online market for buying and selling cloud solutions certified to run on Azure.
“Legal tech” has become an outdated term for companies like UnitedLex, Bryter, and a handful of other well-capitalized companies whose solutions have impact well beyond traditional legal department parameters. This and roll-ups is where investment capital is placing its big “legal” bets.
Law’s tipping point is the convergence of several separate but related factors. Some keys include: digital transformation; the integration of legal with business and its customers; technology; data; workforce and cognitive diversity; and consumer-driven re-imagination of the legal function’s purpose. Law’s tipping point has not been produced by the legal establishment, but it will certainly transform it.