I became a lawyer at the beginning of the ‘Go-Go-90s’, when changes to corporate laws brought a wave of mergers and acquisitions. The companies who profited from this were typically willing to pay sky-high fees for competent lawyers who could help make the deals happen. In the thick of ‘merger-mania,’ few cared to scrutinize a firm’s billable hours. It was a good time to be an M&A attorney.
But all good things come to an end. Today—almost 30 years later—it’s a whole new ballgame. With memories of the financial crisis of 2008 still fresh in the minds of business leaders and the on-going economic devastation wrought by the Covid-19 Pandemic, companies have one big demand for the lawyers they work with: efficiency.
The future belongs to firms that meet this demand.
Efficiency in legal work can be defined as the hours an attorney spends working on a matter compared to the number of hours for which they are actually paid. For example: if a client agrees to pay five hours for an attorney’s time on a certain task, but the task takes seven hours to complete, the attorney is only efficient for the five hours for which they are paid.
Two hours are wasted (not paid) and in the interest of client satisfaction, those non-billable hours are frequently written off by the attorney. Although lawyers aren’t keen on writing off non-billable hours, the practice is widespread. Across the industry, the financial value of write-offs is substantial. According to the Thomson Reuters Law Firm Billing Efficiency and Write Downs Report, the average law partner in a large firm annually writes off almost $190,000 of hours they report to their firm’s billing system.
Efficiency or Bust
Besides the cost of annual write-offs, the pressure for increased legal efficiency and innovation in legal work is coming from four other sources:
- Advances in Legal Technology
- Increased use of Analytics
- Alternative Legal Service Providers (“ALSP”)
- In-house legal teams.
According to the 2019 Aderant Business of Law and Technology Survey, the top three competitors for law firms are: other law firms (53%), clients taking legal work in-house (22%), and ALSPs (15%). To meet this competition, law firms are becoming ever more tech-enabled.
The 2020 Bloomberg Law Legal Operations Study found that 82% of firms are investing in legal technology specifically with the goal of greater efficiency. With the adoption of tools like case management software, lawyers can capture new clients, manage caseloads, streamline billing, increase operational efficiency, and more profitably run their practices. As legal tech increases in power and applicability, firms and solo-practitioners who embrace these tools and make them a substantive aspect of their practice will prosper over competitors who fail to do so.
Analytics have long played a role in Major League Baseball. Every action of every player is measured and recorded via the empirical tool Sabermetrics. Managers and players study the actions of opposing players in various scenarios to make better decisions that increase their likelihood of succeeding in a given situation.
Today, analytics in the practice of law are making a tremendous difference. With digital tools such as Westlaw Edge’s Litigation Analytics, attorneys and their clients can plan and execute legal strategies more effectively. This impressive tool provides hard data on individual judges, courts, firms, attorneys, and types of cases across a wide range of practice areas.
An attorney utilizing analytics is better able to explain to clients the likely path, cost, and duration of a case, as well as the proclivities of an assigned judge and opposing counsel, the likelihood of motions being granted, and even the probability of success for a client’s case.
Alternative Legal Service Providers (“ALSP”)
For a long time, clients held the notion that a firm’s level of expertise was proportional to the number of attorneys on staff. In New York City during the ‘90s, there was a giant firm that, in our envy, we all referred to as the “Death Star.” While renowned for its excellent work, the primary reason for the sobriquet was for the sheer number of attorneys working in its offices.
One downside to huge firms is that they require lots of office space—which is expensive. Combining a reputation for excellent work with high overhead and the result is that engaging a big firm’s services isn’t cheap.
The truth was that a lot of those expensive services being performed in big firms were routine and did not require a licensed attorney to complete. Tasks such as document reviews, discovery, contract management, and general litigation support were usually done by paralegals and other non-attorneys.
Eventually, these enterprising individuals came up with the idea of opening their own niche companies specializing in routine legal services. At first, ALSPs sold their services to law firms as a way to keep costs down. Before too long they started contracting directly with the clients themselves.
Advances in legal technology have also increased the demand for ALSPs particularly for conducting e-discovery and document reviews.
Initially, law firms viewed ALSPs as competition for clients—hiring a paralegal to run a title search costs a whole lot less than hiring an attorney. But many firms have also since come to see the value in incorporating ALSPs to perform certain tasks. A 2017 study by Georgetown’s Law School’s Center for the Study of the Legal Profession showed that more than half of all firms surveyed reported using an ALSP for at least some aspect of legal operations.
In-house Legal Teams
More companies and non-profit organizations are turning to in-house attorneys to handle routine legal tasks such as discovery, conducting internal investigations, writing and executing agreements, responding to subpoenas and so forth—all of which can be done in-house for a fraction of what an outside firm would cost.
In-house counsel is also using legal tech to get the job done efficiently. And since in-house legal teams are paid a salary, there is no guesswork as to the amount of what the bill will be for this type of work.
As a consultant to oil and gas companies, I’ve seen the benefits of doing legal work in-house. Over the past three years, I have spent more time drafting and executing legal documents than I ever did as an attorney. By completing routine tasks myself, I’ve not only sped up resolutions for various legal issues but also saved the companies a boat-load of money in attorney’s fees.
Like Bob Dylan said, “the times they are a changin” and firms have to change as well. A focus on operational efficiency, and the technology that makes it possible, has to be paramount in the firm and among its attorneys. Efficient firms not only have higher rates of client satisfaction, but they also retain existing clients longer and recruit more new clients—and best of all, they become more profitable.