Shifting global economic and socio-political landscapes

With hindsight, it is clear that the current global crisis did not emerge out of the blue – it is a manifestation of pressures built up over decades. We need to consider how the world will be different in coming years, once this crisis subsides, before we can begin to think about how our strategies need to adapt.

Some new business practices that firms are already discussing include:

•·         Making ‘C’ level non-lawyer executives into shareholders, so fundamentally altering the relationship between lawyers and ‘non-lawyers’” in most firms;

•·         Development of multi-disciplinary practices to provide a wider range of services to clients;

•·         Securing equity finance, either through listing on a stock exchange or through private equity, to fund growth either geographically or through recruitment incentives to attract talent; and,

•·         Exit strategies for existing owners wishing to capitalise their investments.

England and Wales is a crucible in the laboratory of law firm strategy and management practice. The rest of the world is watching the ‘Clementi Experiment’ intently.

Exponential advances in technology

There are two schools of thought about the ultimate impact of technology on law firm management. The first holds that technology will never be more than a support tool for lawyers. The second holds that technology will fundamentally displace lawyers from many of the services that they currently provide. The first view is myopic. Technology has moved far beyond being just a means of producing documents faster, managing the firm’s finances more effectively, storing and improving access to data, and better and faster communication, to actual service delivery². The trend towards fundamental transformation is inexorable and exponential.

Limitations cited by those arguing that the impact of technology will be limited include: the current inability to transmit large amounts of data quickly and securely across the internet; inability of computers and software to ‘reason’ rather than simply compute; and, assumptions that clients will always want to work face-to-face with an actual person.

With proven Internet speeds already exceeding the equivalent of 60 DVDs per second (2.56 terabits per second) at the Fraunhofer Gesellschaft in Germany³, with others claiming even far higher experimental speeds, bandwidth is not likely to be a limitation for much longer. Data security is also already at a point where advancing this as an unavoidable limitation is a little dubious.

Computers continue to double in power every 18 to 24 months at no increase in cost, a trend that has held for half a century and is described in the so-called ‘Moores Law’. This is likely to continue for about another decade until the transistors with which we are familiar as building blocks of computational ability shrink to the molecular level and are replaced by something entirely new, much as transistors replaced vacuum tubes.

At point, Moore’s Law may accelerate. A computer’s performance is measured in what are called FLOPS (floating point operations per second). Presently, computers are able to achieve about 40 teraflops (40,000,000,000,000 FLOPS). Scientists predict that supercomputers with the computational ability of the human brain are just a few years away and are already taking about computers with performance that will be measured in zettaflops (1,000,000,000,000,000,000,000 FLOPS) – that is, computers that are 25 million times more powerful than today. If one adds to this current and likely future advances in artificial intelligence, it becomes facile to assume that computers will never be able to move beyond simple computation.

Enormously increased levels of bandwidth will go a long way to solving the final limitation, namely the preference of clients to deal with humans rather than machines. Holographic video-conferencing tools such as Cisco’s ‘Telepresence’ are early indicators of how this trend might unfold. Automatic translation will give people the ability to communicate in whatever language they choose.

The conclusion is inescapable: technology will fundamentally transform everything. To quote Richard Susskind in The End of Lawyers⁴ it will “fundamentally change the face of legal service”.

Technology is the one area where the scope for sudden and radical change in the legal profession is greatest. ‘Disruptive change’, where an emerging new technology rapidly renders an existing technology or practice obsolete, is commonplace in the IT industry.[2] In the legal profession, change is typically regarded as incremental and glacial in pace.

Technology-driven change could render established legal management practices suddenly and dramatically obsolete. Governance practices in place in most law firms are not suited to dealing with disruptive change. This offers as many opportunities as threats for those firms with strategic acuity. The starting point is to rethink the way that the firm views and crafts its strategy, at the most basic level.

Chinese and other non-western models of jurisprudence

Roman Dutch law, English common law and the Magna Carta are historically irrelevant in the East. In the Middle East, Sharia Law and Fiqh (Islamic jurisprudence) are based on the tenets of Islam. In China and several other far eastern nations, the roots are even further back in history, in Confucianism. Other parts of the world also have regional flavours that differ from the West. The ramifications of an ‘east meets west’ collision in law at its most fundamental, philosophical level should not be underestimated. This too could impact how law firms are governed and legal services are delivered to clients.

For the past few decades, the western approach to Eastern jurisprudence and the practice of law, insofar as it pertains to international trade and investment, has been to seek to ‘westernise’ it. Following the shift in the balance of influence between east and west, we can expect the Chinese influence in particular to increase in coming years.

Chinese jurisprudence itself has also been evolving quite fundamentally. Under Deng Xiaoping, China moved away from Mao’s instrumentalist view of law and also eradicated the ‘rule of persons’. Law replaced political policy as the basic framework for government⁵.

China’s accession to the WTO in 2001 triggered further evolution, this time with a strong globalisation imperative and three major goals⁶:

^•1.         Bringing China’s legislation in line with its obligations under the WTO;

^•2.         Enhancing the competitive power of Chinese enterprises in international markets; and,

^•3.         Protecting domestic enterprises and ensuring industrial safety.

Understanding both the likely impact of Chinese influence on international business and finance, and also the likely Chinese influence on the law that will be associated with it, is the first stage of addressing this issue.

The second is to consider what strategic changes are required in order to compete in a world where these changes are in effect. Traditionally, western law has not been good at this: “The tendency in the West too often is to pay little tribute to the existence of other legal traditions, largely because [the other legal traditions] do not have the hallmarks of the Rule of Law approach that developed in the West.^7”

Emergence of a global market for legal services

Frankly, it would be surprising if a single global market for legal services did not develop over the coming five to ten years at most.[3] Protectionist jurisdictional barriers may stubbornly persist in some markets, but for the most part they will have been inexorably eroded away by the markets ability to source goods and services anywhere in the world through the Internet. Markets abhor artificial barriers. They circumvent them whenever this is of economic benefit and achievable. Legal services are not immune from this.

India, in particular, has an enormous talent pool in legal services. According to a 2005 Wall Street Journal article⁸, Indian law schools produce over 200,000 graduates each year. The number of firms providing ‘front office’ functions in western countries with ‘back office’ functions in India is increasing. As the demand for legal services in relatively under-lawyered eastern countries increases, western firms may find themselves at a disadvantage in attracting this work over firms in India and other cheaper emerging markets.

World Trade Organization initiatives against unfair trade practices and trade barriers in services are also a pressure that has hardly even begun to exert itself. Over the past decades, we have seen how trade barriers in products have been steadily eroded. Why not too in services, including legal services? International standardisation of legal terminology and commercial legislation too will accelerate this.

Convergence

The point when considering these vectors impacting the legal profession is that they cannot be viewed in isolation of each other. In order to even begin to understand their implications for law firm strategy and management in the next few years, one has to consider what their combined impact is likely to be, acting in concert with each other.

This practice, called ‘convergence’, is an essential element of making strategic sense of the future.[4] Yet legal practitioners often ignore it because it is, in practice, so difficult and imprecise to apply. The result is that strategy is crafted on the basis of superficial and often incorrect deductions. An example: It took a convergence of advances in computers, X-ray technology, microsurgery and the success of the Beatles to produce the modern CAT scans that revolutionised brain surgery.

If one had asked a neurosurgeon in the early 1970s what impact computers would have on his practice, the response would have been very limited. The 1971 prototype CAT scan (called an ‘EMI-scanner’ and funded largely with profits from the sale of Beatles records) took many hours to execute the scans and process the results. Mobile phones with greater computing power than computers of his day would have been unforeseeable.

If you had asked the surgeon what impact X-rays might have, then again he would probably have thought about the experimental CAT scan equipment, but the pictures were very low resolution and the equipment so specialised and expensive as to be limited to research laboratories.

It was the combination of advances in X-ray scanning, computers, and microsurgery and anaesthesiology all acting in concert, that led to modern neurosurgery as we know it.

The same applies in legal services. It is senseless to ask what the impact of ABSs in England and Wales might have on law firm management practices, without asking what their impact might be when considered together with exponential growth in technology, emergence of a global market in legal services and the changes in the global economic and socio-political landscape, all acting simultaneously and in concert. This leads to a far more complex discussion but, almost inevitably, to a different set of conclusions to when the issues are considered in isolation of each other.

In summary

The purpose of this article is not so much to try to provide a forecast of what the future of the legal profession will be, as to discuss a few key drivers and provide a framework for how law firm leaders need to think about them. I hope that the point is made that it is dangerous to think too simplistically about these drivers or (especially) to try to think about them in isolation of their interrelated impacts on each other.

It is also important to realise that such thinking and such strategy-crafting can no longer be a periodic, once-off event. It needs to be an ongoing process, if the firm’s direction is to be fine tuned (and sometimes perhaps even radically altered) in response to the constantly changing world.

Balancing all these long-term issues with the intense demands of challenging economic priorities is perhaps the most difficult balancing act for law firm leaders today. In my experience, the only way is to create a culture where strategic conversations are a constant undercurrent, and where important information is readily communicated within the firm, to those that need to know it.

The full impact of change is to be found not by considering the separate impacts of different change drivers acting independently, but at the convergence of the impacts of those drivers acting in concert with each other.

FOOTNOTES

1. Armistead, L, 2005. Law firm arms itself so it can handle worst case scenario – The Times online, 2 October 2005
2. Mayson, S, 2007. Law Firm Strategy: Competitive advantage and valuation
3. Fraunhofer Institute for Telecommunications, 2006 – quoted at http://www.physorg.com/news62776076.html
4. Susskind, R, 2008. The End of Lawyers? Rethinking the nature of legal services
5. Lo, CW, 1995. China’s Legal Awakening: Legal theory and criminal justice in Deng’s era
6. Killion, MU, 2004. Post-WTO China and Independent Judicial Review – Houston Journal of International Law, Spring 2004.
7. Hager, B.M., 2000. The Rule of Law: A lexicon for policy makers 13 (2000)
8. More U.S. Legal Work Moves to India’s Low-Cost Lawyers – Wall Street Journal, 28 Sept 2005