Is the global legal industry fit for purpose?
Real strategic innovation is needed if law firms want to fend off competition from the Big Four and other new entrants, writes Global Financial Regulatory Institute CEO Linda Lowson
We are now living in an escalating high-risk, high-volatility global environment, characterised by life-threatening cataclysmic events, collapsing earthly ecosystems and severe, multidimensional impacts flowing from these crises. These new realities are birthing system change throughout our entire global infrastructure, including our economic, financial, social, political, governmental, multilateral and industrial policy systems.
Every industry is being forced to rethink and re-architect its business models, market offerings, performance metrics, stakeholder engagement and role and purpose in society. Every industry except one – the global legal industry, which acts as if it has immunity. One must ask whether this industry has sufficient strategic mindset, readiness and willingness to let go of its persistent resistance to change, even in the face of this profound system change.
This industry remains stubbornly wedded to a legacy structural framework of historical practice silos, a hierarchal modus operandi and a financial profit-driven straitjacket, which has been largely static for 50 years. This rigid and archaic restraint has prevented attorney work-life balance and personal satisfaction, and full utilisation of the high-value skills, expertise, knowledge, insight and perspective which legal leaders can uniquely contribute to this existential system change.
Current State of ‘Strategic Innovation’
‘Strategic innovation’, a hot topic since the pandemic, is being utilised to fundamentally improve the delivery of superior value to clients. It is increasingly being viewed as table stakes by the top tier of the industry. By definition, strategic innovation is an enabler of law firm success. However, one must ask if this is an accurate phrase for tactical approaches intended to implement and drive the underlying common-denominator business strategy of revenue/profit/business growth.
Historically, M&A, lateral hiring and new office launches have been the main tactics in the growth arsenal. In recent years, new legal service extensions have been introduced, such as the examples set forth below:
1. Addition of Automation Software: Various types of automation software are being acquired or developed to lower operational costs, increase productivity and enhance functionality of routine legal functions, for both internal use and client use. Functionality scope, originating with contract management, e-discovery and litigation management, now include artificial intelligence (AI) applications, distributed ledger technology (blockchain) and construction of legal data for problem-solving.
2. Addition of Non-Legal Services: Through acquisitions of or alliances with external consulting firms, law firms are adding non-legal service offerings which target specific, high-margin client needs, such as strategic/business consulting, climate-oriented technical expertise (e.g., engineering/scientific) and investment advisory.
3. Addition of Flexible Resourcing Units: Alternative Legal Service Providers (ALSPs) represent a fast-growing industry segment which promises clients more cost-efficient services without the traditional partnership model. According to recent reports, roughly 40% of AmLaw 100 firms, as well as Magic Circle firms, have set up captive ALSP units to win back customers and revenues from ALSPs and to diversify and expand their revenue models.
These operational enhancements are largely rudimentary, have unproven financial performance outcomes and will not meaningfully mitigate the huge and growing competitive threat from the Big Four, which offer a vast portfolio of sophisticated, integrated services and technologies, and have broad and deep market penetration and a high-performance global delivery platform. According to recent reports, the Big Four are steadily ramping up their encroachment into legal services globally and are likely to shift their sights to the higher end of fee-generating legal services.
How Do We Create Real ‘Strategic Innovation’?
It can be said that tactics, methodologies and approaches are not ‘strategies’ and thus technically do not constitute ‘strategic innovation’. Rather, they are tools, mechanisms and modalities to support successful implementation of the business strategy. Historically, the industry’s core business strategy has been primarily transaction-driven, focused upon existing clients and upon new clients generated by referrals, word-of-mouth or the firm’s practice area expertise. Compared to the Big Four, the legal business development infrastructure can be described as unsophisticated, undifferentiated from peers and does not take into account key overarching societal needs which require the rule of law and/or highly-skilled legal expertise for effective outcomes. There has been virtually no analysis of how the global legal industry can be of highest and best use, or best serve, the exigent needs of our global society in an era of long-term, highly consequential crises.
The current transformational forces of system change are creating a paramount and axiomatic need for new policies, new laws, new regulations and new governance structures, all of which require a rule-of-law foundation and which demand a new mindset capable of architecting new strategies, methodologies and measurement mechanisms. As such, this broad societal system lens encompasses the largest body of crucial legal advisory needs and the largest legal advisory revenue and business growth opportunities, as well as the greatest legal liability areas.
This global system change is inevitable and will evolve over the next 30 years. The leaders in our global legal industry – the ‘New Legal Guard’ – have a singular, vital and mandatory role in enabling this system change. The right legal leadership can bring direction, organisation, clarity and efficacy to the current turmoil and discord. They can bring to bear the crucial capabilities of time-tested acumen, discernment, prudence, practicality, perspective and diligent inquiry and scrutiny.
It is time for the New Legal Guard to step up to the plate and assume the honour and privilege of this strategic imperative. Failure to be this ‘lighthouse’ at this time of greatest need will result in policy, governance and rule of law deficiencies and inefficiencies, as well as in massive ‘stranded opportunities’ for legal leaders.
This new, destined role will require a reorientation of the legal industry mindset, a recalibration of legal industry value and a re-conceptualisation of the legal industry business model that can rationally and realistically bridge the gap between its current pillars of strength and the new role imperatives. This is what constitutes real ‘strategic innovation’.
Linda Lowson is chief executive officer and chief counsel of Global Financial Regulatory Institute, a New York-based financial regulation and strategic consultancy with expertise in global capital markets, legal/regulatory and ESG.
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