Undeniably, technology has revolutionized the business world, rapidly changing and expanding in every field imaginable. When it comes to the legal services industry, technological innovation is no exception. This is not surprising given the size and scope of the market—the second largest professional service industry in the U.S. With the 250 largest law firms employing more than 113,000 lawyers, this industry has the means and the need for technology to help address the many challenges facing today’s legal professionals.
Even in light of recent news about a hot M&A market and increase in associate bonuses, the legal climate has changed significantly over the past five years and a new reality is taking shape. More and more, clients are refusing to pay for junior associate work, outsourcing low-level work, and seeking alternatives to the billable hour. Increasing cost-cutting mandates from clients have made finding value and efficiency high priorities. In-house legal departments are facing mounting pressure to both improve the efficiency of their own operations while tackling a more expansive workload and also reducing the amount they spend in legal fees on outside counsel. This demand to do more with less is in turn passed on to law firms, who in a buyer’s market, must find ways to differentiate themselves and provide more value for clients to justify their fees. This relentless drive toward cost-effectiveness has made it necessary for both law firms and in-house legal departments to adopt technology that will make them more efficient.
Technological innovation as a means of creating more efficiency has been steadily emerging across many areas of the law. According to Altman Weil’s 2014 Law Firms in Transition Survey (PDF), when asked about the most likely change agent in the legal market over the next ten years, 32% of law firm leaders chose technological innovation.
Much of the focus of innovation to date has been seen on the litigation side. For example, eDiscovery tools and software have enabled significant time and cost savings when it comes to reviewing emails and other digital records.
Unfortunately, the level of innovation in legal technology has not been evenly distributed, particularly when it comes to transactional work. In the $93 billion corporate law industry, companies spend an estimated $4.2 billion each year on legal fees in mergers and acquisitions alone.
Why so uneven? One of the reasons we have seen technology advance with eDiscovery versus due diligence is that litigators must go through vast databases of email, coding responsive or non-responsive documents, which yields a binary analysis. Artificial intelligence tools can learn based on how attorneys have coded a subset of documents and then apply that learning to the remainder of the documents. However, in the context of corporate due diligence, complex provisions that wind their way throughout a contract must be extracted and summarized for a vast number of highly varied documents. As a result, it is imperative that the machine learning technology used in this setting be more specific and nuanced to be able to recognize the variety of ways in which concepts can be expressed and extract them with a granular focus.
One of the biggest lessons learned from eDiscovery is how dramatically software can improve speed and efficiency, particularly with regard to low-level work. Prior to using some of the eDiscovery tools now available, document review was extraordinarily time intensive. But technological innovation spurred increased efficiency, helping firms get through reviews more quickly, with ultimate time and cost savings passed on to the clients. Expedited document review is also a helpful differentiator firms can use to better market themselves. Many parallels can be drawn to the transactional side of the legal industry where completing the due diligence process efficiently in a merger or acquisition allows the corporate attorneys involved to focus on the negotiation of the deal documents.
This is not to say that software will replace the junior attorney. Rather, attorneys will be able to use technological tools to help them work more accurately and efficiently. Software is most effective when incorporated as a seamless part of an attorney’s natural workflow. This is particularly true of machine learning software in contexts where use of the software enables it to get “smarter” over time. As legal technology continues to evolve it will be important to use what we’ve learned from eDiscovery to apply to future due diligence and transactional tools.
If technological innovation is to play a role across a wider range of legal specialties, now is the time for transactional attorneys to experience and embrace it. Due diligence and contract management are significant cost drivers in corporate law, making this an area that would particularly benefit from the efficiency of technology (speed, cost savings, increased accuracy).
In today’s changing legal climate, lawyers have the option to embrace technology that will help them do their jobs better, more accurately and more efficiently. Corporate lawyers are in a strong position to reap the benefits of this next wave of innovation, setting the stage for a more efficient legal practice.