Richard Susskind + Mark Cohen on Clients + ALSP

This was a live blog post on 28 May 2020 of a 75-minutes video discussion with Richard Susskind and Mark Cohen about clients and ALSP (alternative legal service provider). It is hosted by Legal Geek and sponsored by Thomson Reuters, UnitedLex, and iManage.

Lisa Hart Shephard, Acritas founder and now part of TR, moderates questions in the first part.

This is the second of a four-part discussion, The Uncertain Decade, “Richard Susskind and Mark Cohen debate the future of the legal industry”. The topic today is “What clients want and need” and “Alternative legal suppliers – hope or hype?” (For my live post of session 1, click here.)

This is a live blog post. I publish it as the session finishes. Please forgive typos and misunderstandings of meaning. [I copy and paste to here from my blog so the same disclaimer applies.]

Richard Susskind on What Clients Want and Need (10 minute opening)

Mark and Richard polled some GCs in the UK, US, and Europe. They found worries about people, cash flow, and uncertainty. Other findings:

• Running team remotely well enough
• Advising the business remotely well enough
• Response of law firms was quite good
• Response of ALSPs – not as good
• Predicted change coming – significant / massive

Richard thinks ALSP did not fare as well because the relationships are newer than with law firms and that ALSP work on lower value matters than law firms.

On the “more for less challenge”: GCs have long been under pressure to do more but spend less. The message today, and common sense says, the pressure will go up. There are only two ways to deal with this. Cut costs by becoming more efficient. The other way is “to share the cost” between law firms and clients.

That sharing is evidenced by the rise of legal operations professionals. Running a big legal department is more work than the GC can do. The running of the business has been passed to a COO (legal ops professional) of the law department. They think about management, technology, efficiency, collaboration, and managing the work. This is why CLOC has grown from a a handful to 1000s. Their influence has shifted the legal market from being a seller’s to a buyer’s market.

Richard points out that legal services are a credence good. The buyer cannot evaluate the quality of the service. This is similar to doctors / medicine.

Cautions about asking customers what they want, citing Henry Ford (“faster horses”) and Steve Jobs (“consumers don’t know what they want”). Customers are typically not the innovators. Richard counsels that clients should focus on outcomes, not the process or how. Clients don’t want innovation or AI per se. They want better outcomes or lower fees. (And innovation and AI may get there but are not the outcomes.)

Citing the railroads not understanding they were in the transportation business, in-house lawyers need to understand the outcomes. They want risk managed. The business wants a fence at the top of the cliff, not an ambulance at the bottom.

Mark Cohen opening remarks

Mark picks up on the theme of what business law firms and lawyers are in. For a long time it was legal expertise. But in the last 25 years, it’s not just legal expertise that matters. Today, business acumen and legal service delivery matter as much. Furthermore, lawyers today need to understand and use data. The ultimate client on the corporate side is more concerned about what the data say and tell, not the lawyer’s gut feel.

In the United States, the finding of survey was that GCs found the ALSP more helpful than their law firms. Mark notes this finding differs from the UK finding that Richard reported. And that relationships in the UK matter more than the US, where the question is “what have you done for me lately?”

Richard and I agree strongly that customers (clients) now drive the dynamic. Legal expertise is readily available. It must be paired with tech- and process-expertise, and take a multidisciplinary approach, which is driven by client demand.

ALSP and Law Firms – The US – UK Difference: Richard: It’s hard to explain why GC views of ALSP in the crisis differ in the US versus UK. One hypothesis is that US ALSP have had to make themselves more distinctive than in the UK because in the US, they face tighter regulation. The regulatory constraints drove different behaviors by ALSP. Also, outside of the Big 4, the US has the bigger ALSP than the UK.

Doing More for Less: Mark heard from one GC in the UK that “incrementalism is dead”. Just cutting costs no longer suffices. Mark asks if we can imagine the art of the possible, reconsider the traditional paradigm. Asks if we will see the legal provider deck shuffled. Richard discusses efficiency – using more tech or lower cost labor. We’e seen the labor cost arbitrage play out over the last decade. But we have not yet exhausted the benefits of tech. Richard looks at ALSP as focused on the efficiency strategy.

Small and Medium Size Enterprises (SME) – audience poll picked topic: Richard asks if largest corporations do not like law firm service, how do the SME feel? Mark cites adage that there is too much law for those can it afford, and not enough for those who can’t. In the past, lawyers determined what is law and legal advice. Mark observes, however, that in SME contracts and other work is done by professionals without a law degree. Richard expects to see more online services to generate documents and comply with regulations, perhaps even using social media type tools to share resources and help each other. The size of SME could make it attractive for a large firm to deliver services to it via a digital service (thus serving what Richard calls the “latent legal market”). Mark observes that legal delivery for SME requires a variety of disciplines; both agree it takes designers, knowledge engineers, tech experts, and others.

Lisa points outs that GC role has shifted from legal to business advisor. Thinking about how tech is often sold for efficiency and cost management… why is there not more focus on better service. Richard – in-house lawyers take a level of quality for granted. Law departments always face cost pressure, and in the pandemic, even more so. Richard says “good enough is good enough”, noting that clients believe that but law firms often do too much work, over-invest in the answer. Mark notes the C-suite increasingly drives expectations of law departments and all lawyers in the supply change. Because the GC is closer to the business, they feel the pressure soonest. For the C-Suite, legal is only one consideration. With these pressures, lawyers may not be the primary advisors, that role could fall, for example, to crisis managers.

Audience: Will Law Firms See Legal Project Management as a Revenue Stream. Mark – no. Law is a service business. Firms must decide about build, buy, or rent. It’s a given that LPM is needed. The only question is who delivers it. Richard – is the best person a lawyer who learns PM or a PM who learns about law. There is not question LPM is needed. Who pays and how depends on overall charging models.

Audience: Will Law Firms Start to Look More Like Big 4 with a Multidisciplinary Approach? Richard thinks law firms will emulate the Big Four with consulting and business services. And law firms will also adopt more technology. But otherwise, Big Law and Big 4 are very different and doubts the former will fully emulate latter. All need to re-think the business and operational model. Mark agrees that all providers should face the existential question of finding a place in the market. Law firms should think about practices, talent retention, training the next gen of talent, and with whom they should collaborate.

Audience: Is CLOC supporting true change or just promoting tech? Mark – legal operations are critical and important but are a means to an end. Clients don’t care if ops is in department or firm – it merely needs to be embedded somewhere.

Audience Poll Finds Law Firms Should Focus on Culture: Richard observes that technology and culture are interconnected. Crisis may accelerate use of tech, but can it accelerate cultural change asks Richard. He doubts it can.

Mark on ALSP

How did ALSP come about? There was an unmet market need to deliver legal services in a very different way. New competencies were needed, for example, design, tech, and process know-how. ALSP have different DNA than firms – closer to business than the legal profession.

ALSP have come a long way since the legal process outsourcing (LPO) days, which initially focused on lower cost labor (arbitrage). As LPO evolved, they adopted more and more technology. They were different from the start, with more corporate models than law firms.

In the last few years, ALSP have come of age. Those that operate at scale are tech enabled, use data, are customer centric. They are highly sophisticated, global, and employ 1000s. When they employe lawyers, it’s not to practice law; rather it is for data analytics, for LPM, and to design tech systems.

Alternative suggests Junior Varsity, a detour – and that’s the wrong view. Law is not just about legal expertise. It now requires, legal, tech, data analytics, and business expertise. Also, all providers must focus on customer satisfaction, citing Net Promoter Scores. Suggests ALSP does better on all these than the legal centric, hierarchical law firm partnership model. Furthermore, law firms, by distributing profits each year, encourage short term perspectives.

On culture… it’s about how groups self-identify. In law firms, the entrenched stakeholders, the partners, don’t want to change, even if change is good longer term.

Key take aways: the distinction among provider labels is less important than the operational model.

Richard and Mark Discuss ALSP

Richard: I am a big fan of ALSP. Has been involved in this evolution since 2004 in UK. But is disappointed. Only 1 or 2% of the trillion dollar legal market goes to ALSP. The potential remains but is largely untapped. Richard is puzzled that at why a few clients are super satisfied with ALSP but other clients are less satisfied or interested.

A premise of ALSP was unbundling / disaggregating legal work. This has been harder to do that we expected. Clients want one neck to choke. And it turns out a senior lawyer does need to supervise and integrate all the pieces. Increasingly, law firms are providing their own (captive) ALSP.

Another surprise: The UK re-regulated the legal market in 2011. That allowed more flexibility. Richard is disappointed that the US continues it monopolistic approach to legal regulation. Mark concurs with Richard on US approach to regulation but points out that the market has, nonetheless, responded, citing United Lex and Axiom, each of which has raised substantial investment capital. This is evidence that regulations are not holding back investment. Mark also notes that ALSP are doing very sophisticated work in the US. The boundaries are not that clear.

Richard notes that if we were to look a percent of legal work today that is done using alternative methods, it is very much higher than in the past because law firms have adopted the same approaches.

Audience Poll Chooses a Focus on Legal Tech Companies and “New Look Law Firms”. Richard: we’ve gone in 500 to 1000s of legal tech start-ups in the last five years. Each is trying to do what Amazon has done, but just in a little corner. Most won’t survive. We talk about “legal tech industry” but most of the spend on it comes from law firms, not clients or consumers. Consequently, it is more a sustaining than disruptive force.

Mark advises legal tech start-ups to look a problems through the eyes of the customer. Don’t focus on what’s cool.

The Law Company: This term is a nicer way of saying ALSP, though it may also engage in the practice of law. But we need to frame this with other models such as Axiom (2000-lawyer “non-law-firm”) and Fisher Broyles (virtual law firm, almost Am Law 200). Richard cites an interesting difference – culture. In law firms, innovators are often fighting battles but in other providers, they work with fellow travelers.

Wendy Butler Curtis of Orrick Asks: What does it take for lawyers to thrive and What Will Law Firms Need More of and Less of? Mark: legal knowledge today is table stakes. UK has defined just six reserved categories. Lawyers have to acquire a range of skills. Richard: to answer more of, look at culture. It would good if lawyers were more open minded and less focused on perfection in evaluating new solutions. In short , we need more of a mindset shift.

Mark Asks Wendy How Orrick Has Engineered Change? Clients drive the bulk of change.

[Last question not captured]