Challenges and opportunities for the legal profession

February 1st, 2020
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The Law Society of South Africa (LSSA) and LexisNexis published a report titled ‘Attorneys’ Profession in South Africa 2016 Review’ (see www.lssa.org.za). Legal practitioners, domestically and globally, are faced with a number of new challenges. Some of the challenges create opportunities for growth in the profession (an upside risk), while others will require that law firms need to adapt the manner in which certain areas of practice are conducted. I am not aware of any updated study in South Africa (SA) after the publication of the 2016 report. It has been noted that 3% of the respondents to the Deloitte ‘Future Trends for Legal Services Global Research Study’ (www.2deloitte.com) (referred to below) were from Africa and the Middle East. However, it is not known what number of South Africans, if any, participated in the survey.

An overview of some published studies

A study by Qian Hongdao, Sughra Bibi, Asif Khan, Lorenzo Ardito and Muhammad Bilawal Khaskheli titled ‘Legal Technologies in Action: The Future of the Legal Market in Light of Disruptive Innovations’ (www.mdpi.com) predicts that the growth of the global legal-services market will exceed US$ 1,011 trillion in 2021. The authors have tracked the predicted growth in the global legal-services market on the table below:

The Deloitte Legal study likewise found that the legal services market is growing. The major areas of growth identified in the Deloitte study were regulatory compliance (49%), mergers and acquisitions (42%) and litigation (39%).

Patrick Dixon in ‘10 Key trends that will radically change the future of law, lawyers, law firms, corporate legal, attorneys, legal counsel – If you started out with a blank sheet, how would you design a third Millennial Law Firm?’ (www.globalchange.com) has listed the top ten trends for legal practice depending on geographical location. These trends are of relevance to the legal profession in SA as will be noted from the comments made in respect of each one:

  • Deregulation – the expected changes include the competition and the manner in which legal services are marketed. The rules relating to the marketing of law firms have – in the last decade – been relaxed in SA. Partnerships in a legal practice is still reserved for legal practitioners (s 34 of the Legal Practice Act 28 of 2014 (the LPA)) and there is a prohibition on the sharing of professional fees (s 34(5)(b) of the LPA read with para 12.1 of the Code of Conduct for all Legal Practitioners, Candidate Legal Practitioners and Juristic Entities) with non-legal practitioners. Legal services in SA can only be carried out by legal practitioners in terms of the LPA. This has not, however, prevented other organisations, such as audit firms (through their consulting service divisions), banks (by offering drafting of wills and estate administrative services) and other professions, such as estate agents from making inroads into areas of work previously reserved for legal practitioners.
  • Outsourcing – this includes the area of document preparation. Legal process outsourcing (LPO), according to the study, is expected to grow rapidly as corporations become more confident that issues relating to confidentiality and security are being dealt with. This shift, according to the report, will see a huge growth of new legal graduates in nations like India, for example, over 20 000 a year. It is not known to what extent LPO has been taken up by SA law firms.
  • Globalisation – many law firms have globalised in order to keep pace with the requirements of their multinational clients and are offering specialist advice in many different countries, as well as centres of excellence in specialty areas. The South African legal market has also experienced the entry of a number of international and multinational law firms in recent years.
  • Virtual law firms – law firms have had to reconsider the manner in which talent is drawn. The long-held idea that all the practitioners in a law firm have to be based in the office in order to service clients and generate fees is changing. Many practitioners now work off-site and even on a more flexible basis. This, however, requires an investment in appreciate technological solutions to enable the legal practitioners in the firm to service clients offsite. The recruitment model will need to look for legal practitioners who have the ability and discipline to work unsupervised and also, in many instances, outside of normal working hours.
  • Legal search engines, and other web-based legal services – legal-technology companies have changed the way in which members of the public access legal services. The Internet and social media have also changed how consumers locate and search for legal practitioners, whether by geographical location or area of specialisation. The report by Qian Hongdao et al indicates that between January 2011 and May 2018, a total of just under US$ 2 billion has been invested globally in the legal technology start-up landscape.
  • Commoditisation – separating out all repetitive tasks, or those which do not require technical legal knowledge and skills, from those that require a full legal training and experience and the use of computer systems to produce a growing range of sophisticated documents. There are a number of service providers, which now offer technological solutions, which have a host of precedents for various documents and correspondence.
  • Multichannel communications – many law firms are lagging far behind their clients in respect of the use of social media, video links and other means of digital contact.
  • Growing numbers of lawsuits in every nation – as citizens become more aware of their legal rights and opportunities to claim compensation. This observation is in line with the outcome of the Deloitte survey in which the respondents expected growth of 39% in the area of litigation.
  • Reduced public funding for those on low incomes in court cases – as part of austerity cutbacks.
  • Rapid growth in complexity of legislation and regulations – particularly those in financial services as a direct result of recent economic crisis. This is also an area highlighted in the Deloitte study with the highest number of respondents (49%) expressing a need for growth in this area of practice. The changes in the regulation of the financial services sector was as a response to the general financial services crisis. The financial services sector in SA has undergone significant changes in the last two years with the introduction of the Twin Peaks model of regulation under the Financial Sector Regulation Act 9 of 2017 and the Solvency Assessment and Management (SAM) regime in terms of the Insurance Act 18 of 2017. The SAM model in SA is similar to the Solvency II model in place in other jurisdictions. Expertise gained in the financial regulation sector will place legal practitioners in good standing to service the financial services in SA and abroad. The new regulatory regime has included the introduction of a number of other considerations such as the Treating Customers Fairly approach. In the two decades, SA had also introduced a number of other pieces of legislation aimed at consumer protection – these include the National Credit Act 34 of 2005 (the NCA) and the Consumer Protection Act 68 of 2008 (the CPA). The introduction of the NCA and the CPA resulted in the emergence of two new areas of practice in which a number of firms have specialised. Similarly, the introduction of the Twin Peaks and SAM models of regulation create new areas of possible specialisation for legal practitioners.

Legal practice needs to evolve in order to meet the unmet expectations of their existing (and potential new) clients. The Deloitte study found that the consumers of legal services had a number of unmet expectations, being –

  • the need for integrated, multi-disciplinary services across borders beyond legal advice;
  • improved use of technology;
  • an increased need for legal services in the area of regulatory and global compliance; and
  • a change in the fee pricing model with participants requiring fixed or capped fees and the introduction of some form of value-based pricing.

Technology is a recurring topic in the material published on the challenges facing the legal profession. Clients expect legal practices to increasingly use technology. The report on the 2016 study conducted by the LSSA and LexisNexis noted that: ‘The online world has become a central force in almost every industry, and the legal fraternity has eagerly embraced it, especially when it comes to research.

Online marketing, service provision and the use of social media are now regarded as a priority for many firms, whereas networking remains a firm focus for business growth strategies.

As firms grow their service portfolios, they expand to include further practitioners and seek out new ways to attract and retain clients, they are responding positively to a fast-changing environment.’

Candidates seeking positions in law firms have also raised the importance of technology (see ‘What are some of the biggest challenges currently facing law firms?’ www.lawcareers.net). The article notes that: ‘In our ever-changing, always-moving world, one of the biggest challenges faced by law firms, whether big or small, is technology. Technological change can undoubtedly positively impact a firm – for example, technology has sped up international communication considerably and automated basic tasks, thus freeing up solicitors’ time for other work. However, since technology changes so fast and there is so much uncertainty about its potential success, it is often hard for law firms to keep up. If companies do not follow a new technological trend, they risk being left behind. However, if they invest in a new technology that proves to be a hindrance, they lose out. Thus, firms have to perform a difficult balancing act and their choices can impact greatly the company’s progress. In addition, with technology comes the ever-increasing threat of cybersecurity, which law firms have to be particularly sensitive to, given the nature of their work.’

There are many articles and reports published on the risks facing law firms. While there may be some variations with regard to the listed risks (based on the data samples, area of focus of the research or the geographical area covered), cyber risk is included in all top ten of all the risk surveys. Readers can, for example, have regard to the following surveys:

  • The Aon 2019 Global Risk Management Survey (www.aon.com, accessed 18-11-2019).
  • PWC UK 2019 Annual Law Firms’ Survey (www.pwc.co.uk, accessed 18-11-2019).
  • ‘7 of the biggest risk management challenges faced by law firms today’ (https://businesstown.com, accessed 18-11-2019).
  • Yvonne Jooste ‘Cybercrime: Law firms under threat’ (www.tech4law.co.za, accessed 18-11-2019).

Cyber threats against law firms and their clients are on the increase internationally. Legal practices must ensure that appropriate measures are implemented to protect themselves and their clients from cyber risks. Cyber risks pose a threat to the funds and the data held by law firms.

Conclusion

It is hoped that legal practitioners in SA will have regard to the outcomes of the various studies on the challenges facing the profession. The lessons learned will enable the legal profession to identify possible areas of growth in the future and to meet the expectations of clients. In this way, legal practice will remain relevant and sustainable in the long-term.

Thomas Harban BA LLB (Wits) is the General Manager of the Legal Practitioners’ Indemnity Insurance Fund NPC in Centurion.

This article was first published in De Rebus in 2020 (Jan/Feb) DR 6.