“But we’ve have always done it that way.” Sound familiar? In 2013 Eric Chin coined the term NewLaw. The concept has been significantly piloted over the past 12 months since the outbreak of Covid-19. But what is it? Is it just another passing fad? And what does it mean for traditional law firms, the practice of law and the legal market?

NewLaw is the antithesis of big law or traditional law firms. NewLaw firms use disruptive technologies, more efficient use of human capital and instead of the billable hour they use value-based pricing. Did I also mention that the customer or client is placed at the epicenter of this new world. We now live in the age of the consumer where the marketplace for legal services (both private and business clients) has shifted from a sellors to a buyers’ market. Clients want tangible outcomes, strategic value driven advises, integrated solutions and not billable hours. Has Covid-19 being the catalyst or tipping point for NewLaw? Bestselling author, Malcom Gladwell, refers to a tipping point as when “that magic moment when an idea, trend, or social behavior crosses a threshold, tips, and spreads like wildfire.”

Let’s quickly take a whistle-stop tour of major trends in key legal markets such as the UK, the US. and Ireland before we identify the core ingredients of NewLaw.

In the UK a recent report from Arden highlighted that the legal consultancy model was flourishing with central service and management infrastructure, brand and lawyer renumeration key components. The consultancy model provides law on demand in an agile and cost-effective environment. Keystone Law and several other firms have validated the consultancy model in the UK.  Significant advantages exist over the traditional partnership model such as the ability to scale and reduced overhead costs than acquirer models. The Arden report predicts that the legal consultancy model will constitute one third of the legal market within 5 years. A 2019 survey by Thomson Reuters on the alternative legal service provider (ALSP) legal market showed a 24% compound annual growth rate with one third of corporate firms now using ALSP’s for legal services. An ALSP is an umbrella term for any business providing legal services without being a traditional law firm. We are also seeing the Big Four flex their legal muscles in several jurisdictions.

In the US. a 2020 state of the legal market report suggests that revolutionary changes are afoot. The report highlights that law firms are increasingly using allied professionals and specialists including legal project management. Technology is a key investment area with marketing and business development also key success factors. Outsourcing is also popular with firms using ALSP’s for litigation and investigation work and e-discovery support. Law firms are also setting up “captive” subsidiaries for legal-related services to provide a hybrid or blended service offering to clients.

In Ireland a recent Smith & Williamson survey report warned readers to be in no doubt that this is a precarious moment for the legal sector. The study of the Irish legal sector highlights costs and profitability pressures with significant investment in remote working technologies. Top firms are also focusing on client facing technologies to enhance the client experience, digital brand, social media and the provision of online services.

Now that we have examined key trends in legal markets what does NewLaw look like? NewLaw uses different business models rather than the inflated pyramid structure where the billable hour and leverage are the name of the game. It is sometimes referred to as the law firm on a diet so let’s examine the key elements.

Firstly, client centricity is at the core of NewLaw. Client engagement moves away from being transactional in nature to pro-active and holistic whereby long term trusted relationships are formed akin to a legal concierge offering. The removal of the billable hours model to more value-based pricing is inherent in such a transition.

Secondly, client centricity is achieved in part through legal technology and digital transformation. McKinsey points to a number of areas where law firms need to focus on building their capabilities including digital and technology innovation. Virtual law firms, for example, can operate without the overhead cost of large physical trophy offices, and are growing in prominence both in the US. and UK. Most NewLaw models use cloud-based technology tools allowing them to create seamless communication networks among widely dispersed lawyers, outsourcing everything from admin work to office management. Technology can help level the playing the field in a way that now enables smaller firms to compete to deliver cheaper, better, faster outcomes for clients.

The use of legal technology to automate work processes means that NewLaw firms can use labour arbitrage – the more efficient use of people – to perform legal or quasi legal tasks to deliver reduced client costs. In addition, lawyer pay is typically linked to billings on what is known in the US. as the ‘eat what you kill’ basis.

Finally, what does this mean for the legal market? In Ireland, the legal profession still has an effective monopoly of the legal market. In house legal counsel has emerged and will continue to grow. Johnson Hana is an example of one NewLaw ALSP which combines cutting edge technology, lawyers and project management skills to deliver legal solutions at significantly reduced legal costs. One big question is will we see liberalisation of the market like we did in the UK with multi-disciplinary practices (MDP’s) as proposed in the Legal Services Regulation Act 2015. Such a move would see non legal professionals having the ability to own and run law firms with significant potential for law firm investment. The Law Society and Bar Council are vehemently opposed to such a move but, if passed, we would see an electric shock through the legal market and trigger fascinating M&A opportunity and activity.

Peter Drucker famously commented that: “The only thing we know about the future is that it will be different.” NewLaw is different. Law and business have now fused with technology, people and process at the core of this transformation. The nucleus of NewLaw however are clients, driving this change and who now hold the bargaining power in the age of consumer. An innovative and exciting time to be in the legal profession. The legal game is truly afoot!

More information at www.sellors.ie or please contact Ronan Hynes, Partner by email at rhynes@sellors.ie.

 

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