Ferris Bueller said, “Life moves pretty fast….” That was in the ‘80’s. What would he say now? Life is moving very fast, propelled by the speed and breadth of change.
Legal industry change is generally viewed through the narrow lens of the profession. Lawyers have long controlled all facets of the industry—education, training, delivery of self-proclaimed “legal services,” the judicial process, and regulation. They have also scripted the industry narrative.
That’s changing—business is recasting the culture, mindset, role, remit, and purpose of the legal function. Lawyers are a segment of an increasingly diverse, tech-enabled, data-backed, fit-for-customer/business purpose legal function. Many lawyers and industry pundits see little evidence of this—large firms continue to prosper, rates are climbing, and the talent war is driving up compensation packages. What’s changing?
To understand the inevitability and accelerating pace of legal industry transformation requires a wider lens. Why has change become a ubiquitous and ever-accelerating part of life? How is business responding? Why is the C-Suite ratcheting up pressure on General Counsel to align and integrate with other business units? How will that alter the legacy legal landscape and refocus its purpose on driving value and an elevated customer experience?
he answers to these questions reveal why legal industry change is inevitable and accelerating. It is presently distributed unevenly; corporate legal departments are feeling the brunt of it. The mounting pressure exerted by the C-Suite will propel General Counsel and their leadership teams to reimagine how, with whom, and with what tools and resources they meet the demands of their expanding role, remit, and portfolios. This will have a profound impact on the supply chain-especially law firms-and the entire legal ecosystem.
Macro-Environmental Forces Reshaping Our World
The pandemic has intensified an already perfect storm of macro-environmental forces that are fundamentally altering how we live, work, buy and sell goods, and exchange information. The velocity and scope of change is challenging our adaptability—as individuals, businesses, societies, and human custodians of the planet. Darwin posited that, “It is not the strongest of the species that survives, nor the most intelligent; it is the one most adaptable to change.” His theory is being tested in real time by a remarkable convergence of change that includes:
· The shift from an analog to a digital world
· Rapid technological advances
· Big data
· Social media and global access to information/misinformation
· Climate change
· The implosion of nation states and mass migration
· Global terrorism and political polarization
· The uneasy coexistence of a global workforce/supply chain and rising nationalism/tribalism
· A widening socio-economic divide hollowing out the middle class
· Political polarization and an erosion of trust in institutions
· Food and water insecurity
Business Challenges And The Digital Imperative
The speed and complexity of business has been dramatically affected by the macro-environmental forces listed above. Business is concurrently confronting a growing list of additional challenges that include:
· A paradigmatic shift in the buy/sell dynamic that has produced hyper customer-centricity;
· Asymmetrical competition;
· Corporate governance crackdowns and shifting expectations of corporate purpose and responsibility (ESG, DEI, etc.)
· Supply Chain Disruptions
· Talent wars and “The Great Resignation”
· Regulatory complexity
· Cyber incidents
· Natural catastrophes
· Macroeconomic developments
· Threats involving brand value/reputation
· Fire, explosion, and mass casualty incidents
· Political risks
· Theft, fraud and corruption
· Political instability
· Currency fluctuation
Digital transformation has fundamentally altered business and its relationship with customers, the workforce, and society. The omnibus term “digital transformation” does not begin to capture the multiple elements, complexity, nuance, and mindset shift involved in this paradigm-altering process. It is a multidimensional, enterprise-wide, integrated re-imagination of “the art of the possible” designed to drive value creation and elevate the end-to-end customer experience.
Digital transformation is enabled by technology and achieved by human imagination, data-enhanced experimentation, and adaptation (change management). These elements are interconnected and indispensable to reap the benefits of “going digital.”
There is a common misconception, especially in the legal industry, that digital transformation and tech are synonymous. Big Data, Cloud Computing, the Internet of Things, AI, and resource/workflow management are digital transformation’s enablers and the backbone that supports change. Customer-centricity, new organizational structures and economic models data, multidisciplinary, agile, and fluid workforces, up-skilling, and constant improvement are its heart.
Why Is Digital Maturity So Important?
Digitally mature companies far outperform their less mature peers. A McKinsey study found that mature sectors like semiconductors and software are far outperforming lower-maturity ones like utilities and energy. The study also found a similar pattern among businesses across the surveyed industries.
A Deloitte study found that higher-maturity companies are approximately three times more likely than digital laggards to report annual net revenue growth and net profit margins significantly above their industry average. Deloitte’s research (like the McKinsey study cited above) found this pattern cuts across industries and companies.
Deloitte identified several key transformational elements that it calls “digital pivots.” They include: data mastery, intelligent workflows, efficiency, product/service quality, customer satisfaction, up-skilling workforces, and a focus on growth and innovation. Mature companies invest in each of these areas, and companies that pursued all pivots achieved significantly higher performance than those that adopted a less comprehensive approach.
Digital pivots are easier to identify than to implement. To make the pivot, business must examine and reevaluate every facet of its existence with the goal of providing an elevated end-to-end customer experience. This involves a reappraisal of corporate culture, structure, economic model, metrics, technology, data mining and analytics, talent, tools, up-skilling, investment, strategic partnerships, agility, diversity, governance, social responsibility, and planetary stewardship. There are no sacred cows in this process.
Business was once principally focused on revenue, profit, share price, and other economic-driven metrics. Now, it has additional success metrics—enterprise, society, and governance (ESG), diversity, equity, and inclusion (DEI), among a growing list of holistic, humanistic values. A McKinsey Global Institute report found that 87% of people surveyed believe companies should create value for multiple interests, not just make profits. This data point has implications for corporate purpose, culture, talent management, marketing, strategic partnerships, and governance to cite a few examples.
The C-Suite Is Pressuring GC’s To Change—Why and How?
Digital transformation is an enterprise-wide team sport. No function—law included—is exempt from participation. That’s why the C-Suite is intensifying pressure on the legal function to align with corporate purpose and to integrate with other enterprise business units to create value. Here’s how that pressure is being applied and why it will drive profound change not only to in-house teams but also throughout the legal supply chain and ecosystem.
General Counsel and their leadership teams are on the front lines of legal industry transformation. The C-Suite is intensifying pressure on them not only to reduce spend but also to operate as business units and to morph from cost centers to value creators while proactively serving as enterprise defenders.
The 2021 EY Law Survey, conducted in collaboration with the Harvard Law School Center on the Legal Profession identified several fiscal and operational challenges faced by corporate legal functions. Here is a sampling of the data:
· 75% of GC’s are having difficulty handling current workloads;
· The workload is projected to increase by 25% during the next 3 years;
· 88% of GC’s report plans to reduce their budgets in response to escalating pressure from the C-Suite and Board to do so;
· Among large corporations (>$20B annual revenue), the C-Suite mandated legal cost takeout has jumped from 11% in 2019 to 18% in 2021.
A 2021 Gartner Report projects law’s accelerating transition from lawyer and labor-centricity to tech-enabled scalability. Here are some highlights:
· By 2025, legal departments will increase their spend on technology threefold.
· By 2024, legal departments will replace 20% of generalist lawyers with non-lawyer staff.
· By 2024, legal departments will have automated 50% of legal work related to major corporate transactions.
· By 2025 at least 25% of spending on corporate legal applications will go to non-specialist technology
A recent study by The Digital Legal Exchange revealed the C-Suite’s changing legal remit is broader than financial and operational issues. The research found that 97% of business respondents said they wanted the legal function’s success metrics to be aligned with business goals. Nearly three-quarters (74%) of business respondents said it is important/extremely important for legal to create revenues and new market opportunities.
The aforementioned surveys focused on corporate (“in-house”) legal departments. To meet the expectations of business requires General Counsel to “reimagine the art of the possible” not only for their internal teams but also for their entire supply chain. Most GC’s are initially focusing on changing their internal team’s culture, mindset, and ways of doing things before tackling the supply chain. That has provided sourced providers—notably law firms— with a temporary reprieve that will not last.
How Does Legal Meet The Challenge?
How can the legal function meet its challenge to become fit-for-digital-customers and society? Spoiler alert: not by preserving legacy legal industry models, methods, insularity, culture, and paradigms. Here are some high-level recommendations.
1. The legal function must see the larger picture of its corporate and societal purpose and the role it plays.
2. Digital transformation is a journey, and the legal function is by no means a pioneer. Business has blazed the digital trail, and the legal function can learn from it.
3. Most legal professionals are digital consumers. They can apply the consumer mindset to their provider role.
4. Tools, resources, structures, models, data, and a digital roadmap are available to enable the legal function to meet the demands of its expanded role and remit.
5. A willingness to change—and a change management strategy— is what’s required.
6. Leadership must explain, embrace, inspire, and lead the change management process.
7. The entire legal function must work in concert to align with enterprise purpose and to integrate with other business units to drive enterprise value and an elevated customer experience.
8. This means that legal should not think of itself as a “department” but as a “function” that shares its expertise, experience, data, and resources internally, cross-functionally, and with/for the benefit of customers/end-users.
9. The legal function’s purpose is to proactively and holistically predict, detect, extinguish, mitigate, and/or quickly resolve risk. It must also function agilely with other business units to create value and enhance the customer experience.
10. Human adaptation to change and a positive mindset are the greatest obstacles to digital transformation, not a lack of budget or an already crushing workload.
11. Legal teams cannot be “too busy for digital transformation.”
12. People are more likely to adapt to change when they understand its purpose.
13 .”Customer-centricity” is a legal buzzword. It is goal, and to achieve it requires a top-to-bottom reconsideration of how things are done and how and by whom they could be performed more quickly, efficiently, cost-effectively, proactively, and compassionately for the benefit of customers and society.
14. Change does not come naturally or easily for most; a shared sense of purpose and a team approach are essential to the success of the transformation journey.
15. Winston Churchill said, “A pessimist sees the difficulty in every opportunity; an optimist sees the opportunity in every difficulty.” Mindset matters.
16. Legal must align with business—speak its language, operate at its speed,provide data-backed recommendations, contribute to and draw from the enterprise data lake, pursue holistic diversity, create metrics that are meaningful to advancing corporate objectives and exceeding customer expectations, elevate the importance of empathy, up-skill its workforce, and practice ethical corporate, societal, and planetary stewardship.
17. Legal must encourage thoughtful experimentation designed to improve customer outcomes/experience and welcome suggestions from all quarters of its workforce. Good ideas are not hierarchically derived.
18. Legal should actively recruit talent from other industries, professions, and geographies.
19. The legal function is sitting on an untapped gold mine of data . Not all data has equal value; a data strategy tied to functional and corporate objectives should be fashioned. That process begins by asking, “What information would enable us to maximize our impact on the enterprise and its customers?
20. A McKinsey report found data-driven organizations are 23 times more likely to acquire customers; six times as likely to retain customers; and 19 times as likely to be profitable as a result.
21. Data does not substitute for human judgment; it enhances it.
22. McKinsey found that the average corporate legal team spends 50% of its time on administrative functions. Liberating the team from these low-value activities presents a significant value capture opportunity for the individual, team, and enterprise.
23. Capturing and leveraging institutional knowledge creates value.
24. Not all legal services require lawyers, and “white glove” service is not the default standard.
25. Automation, artificial intelligence, bots, and other new tools are not threats to legal professionals but liberators enabling them to escape tedium and focus on higher-value tasks that leverage their expertise, experience, and professional judgment.
Legal industry transformation is reasonably foreseeable, if not inevitable. The profession’s role in a reconfigured, fit-for-customer/society-purpose legal function is far less certain. Its willingness to change and to augment legal expertise will determine its relevance.