Trends on the Horizon: Five Drivers Transforming the Legal Industry

There has been a lot written up about changes to the legal industry. As a start-up lawyer, upstart small law firm founder, and legal tech CEO, I have often thought about, argued, discussed, observed and speculated about legal industry shifts (albeit quietly, and to myself). In response to the question “What are some interesting ways the future of the legal industry is trending” I thought I would “pen” some perspective from my lens watching this unfold and to that end, I’ve selected five ideas to share:

1. Demise of the suit

Not the lawsuit, the business suit! Lawyers will no longer wear suits, they will wear pyjamas. The virtual lawyer (working from home or within a freelance/co-working work environment) will be an occupation for many young lawyers due to the scarcity of jobs. Studies indicate that the herd of solo practitioners (especially in rural jurisdictions) is thinning out for a variety of reasons, and this gap will be filled by long-distance professional service relationships, and, quite often, from lawyers working in virtual law firms.

Within firms, not all lawyers will go into the office every day; rather, a core team of lawyers will manage ordinary course legal matters (and I would argue that this is necessary as many legal activities require a team that sits in close proximity looking at each other’s screens and meeting both clients and one another), and specialists will “dial/skype/zoom” in to work on finite matters.

2. Less negotiating, more transparency

Online document providers, especially renowned incubator programs such as Y-Combinator (SAFE Note, for example) will share what they consider to be standard documentation. Early-stage companies will likely enter into these agreements with very little negotiation on the basis that they are standard — to which I would recommend, read carefully, and make sure the documents are not standardizing a situation that requires some customization!

Because of the standard nature of these documents, blogs and explanation posts will allow entrepreneurs to self-educate. Lawyers who educate themselves on these standard documents will be able to provide hourly services to review. This affects the law firm’s sales activities as well - where legal services were most commonly a word-of-mouth purchase because of the “trust” element of the sale, it’s likely that showcasing knowledge online and providing easy online consultation or payment options will become the more important channel for lead generation.

If you take a look online at many “traditional” lawyer websites, you will see ugly sites overstuffed with information and poor font and colour choices. Important activities in law will become social media marketing and tech related jobs including software development. As a result of standardizing contracts, a future benefit will be transparency on “market standards” on clause negotiation and term selection, which will streamline the negotiation process.

3. Blockchain

This brings me to blockchain which has been talked about as a contract-drafting alternative because of the immutable proof that it provides that a contract has been entered into blockchain’s “ledger-based” recording qualities would allow for pop-up registries that contain (depending on the nature of the contract) a record of completed contracts, possibly a ledger of future amounts owing from a variety of counterparties, and/or liens registered against assets recorded in that ledger. While not displacing existing registries, where a register does not exist, one could pop up quickly and organically. (In a far-fetched yet close-to-home example, imagine loaning money to your friends using a blockchain-based app, but checking first to see if they had existing loans with other friends on a central ledger).

Beyond just creating a registry, from an analytics perspective, blockchain contracts would have multi-unary selected deal terms which, if made available for analysis, would allow:

  • (a) lawyers and contracting counterparties to understand trends in legal term negotiation in a way other than the lawyers stating that “this is standard, I have never seen these deal negotiated any other way”;
  • (b) the company CFO or CSO may use these types of analytics to understand the financial implications of adjusting commercial contract terms such as payment terms; and
  • (c) lenders, economists, and so on can make decisions based on trends in deal points (location and liquidity of capital, understanding of leverage, etc.).

4. Biglaw is coming downstairs

Physically and metaphorically, large law firms are coming down to earth. Formerly occupying the highest floors of downtown office towers, large law firms are now relocating to lower floors. Private offices are being replaced with the “open plan”. High billable rates precluding low-value startup/small business work is being replaced with “inshoring” (pioneered by firms such as DLA Piper and Riverview Law) - by sending work to a differently branded subsidiary law practice that provides limited scope fixed-fee services, and in some cases free services.

The shift to entrepreneurship principles is creating a temporary churn of small business clients from small firm to large law firm (or their subsidiary firm) - I say temporary because the overheads, no matter how far reduced, cannot compete with “pyjama law” - however, small firms should not rest easy, and should look for opportunities to further reduce costs and onboard staff efficiently. Some legal purchasers will be attracted by the larger brand name, others will select service providers based on the level of service provided and cost.

5. Specialists will demand high prices

Machine Learning and/or AI software tools (like Blue J Legal for tax) will, for certain practice areas and based on the pricing and effectiveness, either make it easier for generalist firms to enter the market and to become educated on difficult topics, or, if the pricing is set too high, will create another barrier to entry behind which subject matter experts will be able to work even faster than before. For generalists, pricing is becoming increasingly competitive, overhead costs are being reduced (recall: pyjamas - not suits), and with transparent (posted) pricing being offered by many firms, this could end up being a race to the bottom for the generalists.

Stay in school, kids, specialize! The squeeze-down on prices will also require firms to rely heavily on paralegals, law clerks and, as noted above, technology. As a consequence, technology jobs will start to be some of the most important jobs within a law practice.

This works both way - where technology tools are priced-right, this will enable generalist firms to go “upstairs”, and take sophisticated work away from the large law firms or specialist incumbents. Large organizations are already now accustomed to working with boutique and virtual law firms, so long as there is a pedigreed lawyer or team in the mix. This isn’t helpful for lawyers who never had the opportunity to work at a top firm.

Yet, don’t give up hope young lawyers! Virtual law firms will be a pathway to doing really good and sophisticated work if you can prove yourselves. Boutique firms can successfully compete with access to a supportive team and a solid base of legal precedents and learning materials.

Once a lawyer has the confidence to draft their own documents, easy access to legal information and DIY drafting guides such as my beloved will accelerate lawyers to a basic level of general knowledge on many solicitor topics.

Written by Rajah. Rajah Lehal is Founder and CEO of Rajah is a legal technologist and technology lawyer who is, together with the Clausehound team, capturing and sharing lawyer expertise, building deal negotiation libraries, teaching negotiation in classrooms, and automating negotiation with software.