The legal profession around the world is undergoing a significant transformation. Many would argue that the changes coming to the industry from COVID-19 will be greater than those that emerged in the wake of the financial crisis of 2007.
Much scholarship has been written about the transformation of the legal profession, and this contribution builds upon the work of others (see ‘The Death of Big Law,’ by Larry Ribstein, ‘Does NewLaw really sound the death knell for BigLaw or is it just a case of ‘business as usual’?‘ by Scott McLahan, and ‘Big Law Dreams‘ by Pam Jenoff). In the last eight weeks, many law firms have suffered significant declines in their gross revenues. The ABA reported that roughly 81% of law firms have seen their revenues drop during the COVID-19 pandemic, with 27% of firms in that category reporting they have seen business decline by more than half. Moreover, even before the pandemic, according to the Am Law 100 figures released in April, several of the world’s largest firms saw declines in revenue.
I believe that what many law firms are doing is not enough; we are seeing the emergence of an alternative model for the delivery of legal services. I would like to call this model ‘Future Law.’ Traditional law firms should watch out for this new set of competitors on the horizon, as well as potential opportunities for partnership and collaboration with these new providers.
Traditional Law vs. New Law: Understanding the Context of Law Firm Innovation
In 2013, Eric Chin, then an associate at venture capital firm Beaton Capital, coined the term ‘New Law’ to describe the business model of legal service providers that emerged as competition to traditional ‘Big Law’ firms. Some elements of New Law providers, which are said to distinguish them from their traditional law counterparts, are the following:
- New Law providers leverage disruptive technology to automate the delivery of legal services and reduce costs. Although some traditional law firms use technology, it is often not embedded in their roots. For example, New Law firms, from their very birth, use solutions like Clio to streamline practice management across different departments, ZERØ to automate email management workflows, and ROSS Intelligence to superpower their legal research.
- Traditional law firms are characterized by the partnership model and its corresponding hierarchy. In contrast, New Law firms are inclined towards a flatter working structure, shying away from a pyramidal scheme with partners, because the notions of traditional partnership and pyramid-profit models are incompatible with their efforts to reduce fixed costs. New Law firms tend to search for other incentive elements in their compensation structure to reward lawyers for excellent performance and client satisfaction. Some New Law firms even go as far as to use a ‘corporate’ model, rather than a partnership system. For example, VistaLaw’s employees are in-house and outside corporate lawyers who are available on a project basis. They are not associates of a firm. In addition, LegalForce has no partners or associates. Instead, the compensation is tied directly to the work performed and comprises a percentage of the client’s billings.
- New Law firms are comfortable offering flexible working arrangements for their team, which also helps to reduce the fixed costs of owning and managing expensive office space. For example, FisherBroyles and Culhane Meadows embrace the concept of distributed working for improving their lawyers’ quality of life and reducing expenses, thereby also reducing prices for clients. In contrast, traditional law firms rely on office space for client meetings or simply provide a physical space to develop the relationships and bonds that arise when lawyers are collocated. They tend to have strict working arrangements and are not as comfortable with remote work, unless there are valid exceptions, such as during the COVID-19 pandemic.
- Traditional law firms have robust pipelines for recruiting new attorneys, often recruiting them with the promise of high salaries. In turn, they nurture first-year associates, providing them with training and supervision from senior associates, junior partners, and/or senior partners. This training is made under the assumption that a first-year associate may eventually become a partner. In contrast, New Law firms are not as open to hiring junior associates. Their model focuses on hiring more experienced lawyers with an inclination towards entrepreneurship. Furthermore, New Law firms usually hire lawyers that are ‘business-savvy.’ One clear example is Axiom, which recruits experienced attorneys based upon a careful analysis of staffing needs.
- A final but important difference between the two models is pricing and billing. In the traditional Big Law firm, the partners hire associates and bill the associates’ hourly rate out to clients. Even if some work requires significant supervision and revision, the firms still bill clients for the number of hours invested in the work. New Law firms tend to focus on alternative billing arrangements. New Law firms tend to bill on a project basis or a fixed fee. For example, Clearspire favors a fee system whereby clients pay fixed fees for their services, to give clients a predictable cost structure.
What is Future Law?
I believe the traditional and New Law firms will continue to exist and adapt to our changing climate. These firms are essential in providing legal services to different industries and clients. However, the current circumstances are accelerating the rise of a new model. So how does the Future Law model compare to the traditional law and New Law firms?
- Future Law firms are human-centered providers, focusing on designing products and services with a real end-user in mind. That doesn’t mean Big Law and New Law firms are not client-centric, but Future Law firms consistently improve their products and services by implementing Legal Design Thinking as a core feature of their business model. Future Law firms exercise empathy to understand the needs and concerns of the end-users. They will become comfortable with the notion of modeling Minimum Viable Products or ‘MVP’ for clients. This creative process might be a result of a hackathon or a design jam. In other words, an explosion of experimental innovation drives Future Law firms.
- Future Law firms will not merely adopt disruptive technologies; they will create them. Future Law firms will provide a variety of legal services, but also focus on creating facilitative technologies for the legal industry. Future Law firms develop their own technology products, which can be as simple as a dashboard for their client to access their legal documents created with Documate. Some firms will develop legal tech products directed at managing internal administrative processes, while others will focus on creating solutions for the industry at large. For example, Clearspire created Coral, an intranet hub that essentially communicates all of the firm’s resources at the disposal of every employee.
- Future Law firms are structured like technology startups. Rather than having a partnership or corporate model, Future Law firms offer some type of ownership interest or equity to compensate, retain, and attract employees. Equity Incentive Plans for their employees will become the new normal.
- Future Law provides flexible working arrangements and the technological infrastructure to support their entire team working remotely. The use of tools like Jira, Asana, and Microsoft Teams are helpful to collaborate and execute assignments. Future Law firms promote accountability and avoid micromanaging, not wondering if supervision may become an issue even if lawyers are not working in one office. Even after this pandemic, Future Law firms will support the decision to work remotely with flexible arrangements, as long as the tasks are completed in a timely fashion.
- Future Law firms will combine hiring first-year associates and training them with hiring experienced lawyers with the education and personality to fit within a relatively entrepreneurial practice. But in addition to business-savviness, all lawyers will need to be tech-savvy. Legal systems engineers, legal information technologists, and legal project managers will become normal positions in a Future Law firm.
- Finally, Future Law will have flexible billing arrangements instead of relying on the billable hour. For example, VistaLaw bills clients on an hourly, daily, or project bases. The client, in partnership with the lawyer, will determine the fee arrangement. For example, not all clients want a fixed fee. Future Law firms will find a balance and bring together the best of both worlds.
Any Firm Can Be a Future Law Firm
The COVID-19 challenge was an unprecedented event for all law firms. In the current highly uncertain and rapidly evolving environment, no single course of action will be appropriate for every firm. However, firms that can (1) reduce law firm overhead and costs, (2) innovate in billing practices, and (3) innovate in lawyer compensation and tenure will be best positioned to prosper in the new normal.
A Future Law firm doesn’t require all six characteristics outlined above. The true defining characteristic of Future Law is the ability to innovate and adapt to meet the changing needs of the people who interact with the law. The concept of a Future Law firm is not fixed—it is a mindset. If lawyers embrace innovative new technologies and adopt a spirit of collaboration, I envision a great future for the legal industry.
ZERØ has recently launched a podcast called The Law Firms of the Future, which highlights many law firms embodying a Future Law mindset. To listen to recent episodes, check us out on Apple Podcasts, Spotify, or wherever else you get your podcasts.