Legally Bound to Change

29th May, 2018

The UK legal sector continues to grow. According to National Statistics the ‘turnover on legal activities’ to December 2017 was £33.5 billion, up 7% on 2016 albeit following a dip of -3% the year before. The 2016 wobble was amplified in Cornwall & Isles of Scilly, with GVA for the ‘legal and accounting’ sectors less than 90% of the 2015 output. We await the new statistics to see if the sector in Cornwall bounced back in 2017 as per the rest of the country.

In the March 2018 issue of Business Cornwall, we examined the growing role of technology in upskilling business and the digital ‘always-on learning’ opportunity given the investment in the superfast broadband infrastructure across Cornwall & Isles of Scilly. We noted that the opportunities for connected businesses (including those working in the legal sector) are more than just transferring large data files but present the opportunities to disrupt traditional industries and re-engineer processes.

PricewaterhouseCooper’s (PwC) 2017 Law Firms’ Survey notes the market challenges, stating that in many respects law firm performance has plateaued, if not declined. Profitability is under pressure and a digital revolution is inevitable for professional services firms. It says fundamental action is needed to future proof the shape and operation of law firms. PwC’s headline message and the title of its report is ‘time for change’.

Another UK study by Peppermint Technology in 2016 into legal services examines how law firms measure up against other sectors in the critical areas of customer satisfaction and business innovation. It concludes that they are not moving fast enough. Its key research findings include:

  • Legal services achieved the lowest customer satisfaction score compared to other sectors.
  • 1 in 5 law firms make a loss, with 13% being “close to ceasing to trade”.
  • 60% of law firms do not seek regular customer feedback.
  • Law firms invest less on IT as a percentage of turnover than firms in financial services, accountancy or consultancy.
  • 30% of law firms have not introduced any new initiatives in the last 2 years.

Such findings were echoed locally last year when PFA Research polled Cornish residents through the What Cornwall Thinks omnibus survey and found that just 37% would be highly likely to recommend their last solicitor.

The Law Society of England and Wales examined the key drivers for change in the current landscape of legal services in its 2016 report, ‘The Future of Legal Services’. It summarises the key drivers of change can be clustered into five groups:

  • Global and national economic business environments.
  • How clients buy legal services (including in-house lawyer buyers as well as small and medium sized businesses and the public).
  • Technological and process innovation.
  • New entrants and types of competition.
  • Wider political agendas around funding, regulation and the principles of access to justice.

Whilst ‘global or national economic business environments’ and ‘wider political agendas’ are significant, but otherwise external and largely uncontrollable, law firms may take heed of others, such as how clients want to buy legal services and technological and process innovation, especially with the opportunity of operating in a connected Cornwall.

A report by IRN Research which surveyed 180 UK businesses, predicts sector growth in 2018 and 2019, but proposes that law firms must become more flexible and market-savvy as competition increases and as major clients seek to unbundle legal services by buying-in only selected services. This is highlighted somewhat through another IRN survey which discovered that six out of ten small businesses use just one law firm for all their legal needs but a majority of large businesses are using more than one law firm.

The PwC report notes positively that over 70% of firms in its survey of top 100 have delivered or embarked on remote and mobile working, but with work still to do to make such use a cultural norm. The report also notes that increasingly firms are viewing technology not just to boost efficiency but as a way to re-imagine how legal services are delivered. Unsurprisingly, larger firms lead the way in developing transformational technologies such as Artificial Intelligence (AI), Robotic Process Automation, Predictive Analytics and Smart Contracts although the adoption of these technologies is still immature.

In the April 2017 edition of Business Cornwall, we looked at Cornwall’s legal sector post-Brexit and how the sector has significant potential to aid job creation in Cornwall, particularly relevant given the uncertainty surrounding Brexit (with arguably no greater certainty one year on) and the loss of European funding in Cornwall.

Complex global compliance events such as GDPR or economic drivers such as Brexit are creating new large-scale contract remediation challenges for many companies outside of the financial industry, according to Thomson Reuters Legal Managed Services. Contract remediation has historically been labour-intensive, requiring large teams and manual effort. So Thomson Reuters is working with AI company Logical Construct for natural language processing (NLP) and machine learning techniques, to provide the tools to help financial service companies review and repaper legal agreements ahead of Brexit.

IBM Watson, the supercomputer famed for winning US quiz show Jeopardy in 2011, is reportedly working with several legal organisations to develop a range of applications for the profession. Among those are two Swedish law firms building a new AI-driven contract review and advice system. Focused on shareholder agreements, it has been trained to identify the type of document, find key clauses and then provide advice on aspects of those clauses.

UK legal AI company Luminance has developed a platform aimed at legal teams to read and understand contracts and other legal documents in any language, finding significant information and anomalies without any instruction. The company’s website states that no set-up or customisation is required.

A major study on behalf of the Solicitors Regulation Authority (SRA) and the Legal Services Board (LSB) which covered 1,500 legal organisations including one of the largest ever surveys of Barristers’ chambers, explored innovation in legal services. It found that solicitors are, on average, more innovative than other regulated legal services organisations in terms of both managerial and organisational changes. Further and encouragingly, 80 per cent of organisations across the sector feel that they have a culture and leadership which is open to new ideas, although only around 40 per cent have put in place organisational procedures to actually support innovation. The report summarises that just a quarter of organisations have introduced new or improved services over the last three years.

We should not be surprised that exemplars of the leading pack of legal sector innovators are right here in Cornwall. Last year Stephens Scown LLP was awarded the UK Law Firm of the Year title at the British Legal Awards. However, it has also won three awards in the Managing Partners’ Forum Awards 2017, namely Best Managed National Firm, Best Leadership of a Mould-breaking Firm and Best Corporate Culture categories. The judges praised the firm’s innovative approach, including being the first large law firm to introduce an employee ownership scheme, which gives all staff an equal share of the firm’s profits. Satisfied staff means better service for clients.

This article was produced for and published in the May 2018 edition of Business Cornwall magazine.

Feature image by Alex Knight on Unsplash