How Covid-19 will affect the current trends in the legal market
The only certain thing about these times is uncertainty. LawFlex CEO Jackie Donner has worked at some of the top law firms in London and in Israel. We asked her to reflect on everything from technology to pricing, staffing to remote working, and innovation to, of course, business development in a “new world” order.
The legal press is rife with predictions about how Covid-19 is affecting the “new law” era. It seems there will be both an acceleration and a freeze on the move of the legal market away from “traditional law”. But what do we know and how can we best adapt in a crisis?
1. Legal tech – boost and bust
Crises generally accelerate the adoption of tech, as necessity forces change. For the traditional law market, even the use of Zoom and Slack has been a momentous change and will have a lasting impact.
Not all legal tech is created equal. In fact, in the coming period, there will be a stark division between must-have technology and that which is nice-to-have.
Technology that allows remote work to happen is a “must-have” and crucial for a firm’s survival. It’s that which falls into the “nice-to-have” category that will take a hit as it is a privilege of a prosperous sector to adopt such tools. Monthly licence fees and high implementation prices as well as the time and staff it takes for adoption will serve as a barrier to the integration of some technologies.
Firms are going to look for free or cheap options (Microsoft Teams, Monday, Slack) and will focus on tools aimed at remote work and collaboration in the short term. In the medium to long term, tools that enable a cheaper and more efficient delivery to clients (such as automation) will be in demand.
Similar to the tech industry at large, there will be a gap in the legal tech market - the gap between winners and losers will become clear quicker than would have happened in a Covid-free world. Venture capital money will be harder to come by and only the clear winners will get funding.
2. Pricing models – boost
Clients have long been requesting alternative models and transparency on pricing. They will no longer request, they will demand.
The age-old oxymoron of the law firms is that firms that bill by the hour have a negative incentive to become more efficient. Adoption of a tool that can review a document in 10 hours rather than 100 hours, means the billable hour is not aligned with the value of efficiency. Efficiency has been winning the battle and Covid-19 will simply give it a further boost.
Mounting cost pressure from the company management, as well as a demand for transparency, will lead to a surge in value-based and fixed pricing.
The billable hour that refuses to die will receive a serious flogging. Although in previous crises it has been shown legal fees do not go down (according to a McKinsey report, in the last downturn, standard rates continued to rise by three per cent a year) the coming times are unprecedented. Even in the last financial crisis, uncollected rates doubled in the five years after 2007. That means that while rates went up, clients simply didn’t pay. This time around, rather than raise prices and drop collection, new pricing models that have been waiting to break through will triumph.
3. Legal operations – boost
Although legal ops may have been viewed as a consultancy service, this discipline will become a must-have in a post-Covid world. Shifts within in-house legal departments will have to happen as the alignment of legal with the business has never been more important.
Again, processes that have been in the making will be accelerated. The departments will be held to higher business standards and will be scrutinised for value and efficiency. Productivity will become more vital and teams will start to report to the CFO or COO.
Legal will be more integral to the business and there will be more emphasis on it as a moat for the business, not only an enabler of deals. The fine print and clauses such as force majeure will need to be more efficiently flagged and legal will need tools to closely monitor and protect the company. All this means that legal operations will become more key to legal departments.
4. Legal marketing – bust
As marketing sits in the expenses section of the budget for firms, and is not something a law firm sells, budgets will be cut. On the other hand, the competition will be tougher and there will be more of a need to stand out, to make it to the top of the rankings, to speak the language of a new generation of clients and lawyers.
How a firm handled the crisis and how they treated their associates will speak to a new generation of trainees and all of this will need marketing spin. Some firms will opt to maintain only an in-house marketing talent while others will find it more cost-effective to outsource.
5. Alternative staffing - boost and bust
Parkinson’s Law is the adage that “work expands so as to fill the time available for its completion”. Anyone who works parental hours and leaves the office to pick up their children will know this first-hand – you can do the same amount of work when you leave the office at 4:30pm as you can do leaving the office of 7:00pm.
Alternative staffing companies have long claimed the same theory applies to resources – you can get the same service for less. Instead of paying a partner at a firm US$800 per hour, you can pay a freelancer US$200 and get the same result by simply cutting the overheads. This claim is now far more interesting to clients then it was in the past – because suddenly price really matters.
And here, “new law” steps in: For law firms, although demand will not necessarily go down as often as past crises have shown, demand in the legal sector is countercyclical. However, what will go down is an appetite for costs that are not vital to the law firm’s business.
The ability to keep a large bench of lawyers that can be pulled on to M&A deals will go down. As part of cost cutting, law firms will be interested in keeping a minimal staff of permanent employees and have the option of flexing an agile team as and when needed. Efficiency in staffing will become key to survival.
Even if the immediate effect of Covid-19 is a decline in demand on alternative staffing firms - as it is easier to release contract workers than employees - flex lawyers are also going to be the first to be re-engaged. The non-committal relationship that these “new law” companies offer is highly attractive in times of turbulence. Last in, first out - but then first in again.
On the supply side, as firms downsize, there will be an increase in the pool of talented lawyers looking for gig opportunities.
“New law’ is going to receive a boost from this new “virus” of change. There will be some winners and some losers, no doubt, but the direction nonetheless seems clear.”
6. Remote working – boost
Lawyering can be done effectively from afar. The cloud and collaboration tools have enabled efficient remote working. Efficient for the lawyer, and the client. In fact, a large portion of the fees borne by clients, are imbedded in office-based work. Fancy offices on Fleet Street, coffee and tea with biscuits, as well as trips to the Seychelles – will be scrutinised. Strip these items off the hourly fee, and voila, the client is left paying a lot less.
Only 20 per cent of legal consumers prefer face-to-face meetings according to a report by Clio. Slashing commuting hours and travel between meetings is also a huge saving especially for a profession that bills its time. There is no client happy to pay for someone’s travel time.
Remote working saves on the bricks and mortar as well as on the time it takes to physically be somewhere.
According to a Red Bee Group survey, 96 per cent of lawyers said their firms have adopted remote work. And that will morph from its current form – there is still a need for meetings and for an option to leave the house. However, work at the office will never look the same as it did pre-Covid. Working hubs nearer to employees’ residences will mushroom, new neighbourhoods that combine commercial and residential real estate in a more symbiotic way will sprout.
7. Innovation – boost
There is no denying that necessity breeds innovation. As in our personal lives, crises present opportunities and force creative thinking. Down-time at law firms leaves more time for implementing firm-wide change and innovation. That air table project that has been delayed for six months? Now is the time to get that done.
The aftermath of Covid-19, several years down the line will no doubt boast a plethora of innovation across legal – from legal tech to new practices and ways of working.
8. Alternative legal careers – boost
With law firms taking on fewer law graduates and thousands of lawyers haemorrhaging from firms, the employment options for people with law degrees will have to be broadened. While many will leave the profession altogether, others will find their place in legal innovation, legal support, legal staffing and legal outsourcing rolls.
The paralegal market will probably balloon, and many of the law graduates will choose to invest their energy in changing a profession – one that certainly begs change.
9. Deregulation of the “Guild” - bust
There has been a move in the last decade to ease the archaic regulations plaguing the legal sector. For example, the rules stopping accounting firms from opening legal services were eased opening a flood of healthy competition to traditional law.
However, an industry under fire may choose to bunker down. There will not be time nor the inclination to dabble in debate about which moribund rules to overturn. Rather, the status quo will prevail for a little longer.
In summary, “new law” is going to receive a boost from this new “virus” of change. There will be some winners and some losers, no doubt, but the direction nonetheless seems clear.