By Ben Groot
There are various trends affecting the legal industry today. An awareness of the changing trends and forces is of critical importance because due to the increased competition levels, law firms will have to be more strategically minded, and be more aware of their competitive advantage and differentiation, so that they may clearly convey the benefits they offer to clients and potential clients. Should a firm fail to do this, it will be outperformed by the competition, and start a backward slide that may lead to eventual closure.
For the purpose of this article, the following trends that impact law firms and the way they do business, have been identified and will be discussed – the increased use of technology, globalisation and its effects, and lastly, the economic climate. This list is not exhaustive, but contains merely some of the most important trends.
Technology
This trend is anticipated to have the biggest effect on law firms in general, and includes the following:
The use of knowledge management systems (managing knowledge in a firm so that everyone has access to it, for example, by the use of precedents), artificial intelligence to sort through massive databases to obtain relevant information, as well as proper document management systems to ensure that electronic documents are properly stored and easy to retrieve, are gaining popularity overseas (P Hall ‘I’ve looked at fees from both sides now: A perspective on market-valued pricing for legal services’ (2012) 39 William Mitchell Law Review at 154.)
The concept of ‘quantitative legal prediction’ is particularly fascinating. Existing data is analysed to answer such questions as what an acceptable fee would be for certain services, what the likely outcome of a specific set of facts would be and what the risks in specific litigation could be (Hall op cit). Firms like Neota Logic (www.neotalogic.com), Tymetrix (www.tymetrix.com) and Recommind (www.recommind.com) all offer solutions in this field. In my view, even though this field is still in its infancy, its impact will be large, and firms need to plan accordingly, in order to take advantage of its benefits as quickly as possible.
Author Richard Susskind in his book Tomorrow’s Lawyers 1ed (United Kingdom: Oxford University Press 2013) is of the view that the challenge to the legal profession as far as the use of technology is concerned, is not to use it to automate current inefficient practices, but to rather use technology in order to practise law in ways that could not have been done in the past.
It is, therefore, of cardinal importance that law firms embrace technology and use it to render services to their clients in new, innovate ways, so as to improve the delivery of legal services.
Globalisation
The second major trend affecting law firms is the increased globalisation of their clients. A partial enabler of law firms’ ability to offer increased global services to their clients is the fact that the growing use of technology has shrunk geographic distances.
It is common knowledge that firms are competing more and more in the global arena. With their clients becoming more globally active, law firms also have to spread their wings and start practising on a more global scale. Author FS Ury puts it very well in an article published in 2011 when he says: ‘A law firm’s world is no longer limited to just the county or city where the office is located’ (FS Ury ‘Atticus Finch and the future of the legal profession’ (2011) 18 Southwestern Journal of International Law at 225).
As an answer to this requirement to be more globally active, there has been an increase in cross-border mergers between law firms, as well as an increase in the number of offices opened by United States (US) law firms in foreign locations.
Another result of the increasing globalisation of the legal industry, is the phenomenon of ‘legal process outsourcing’ (LPO). LPO is the obtaining of legal services from an outside law firm or legal support services company. Currently, according to a 2013 report by Altman Weil, 7,7% of US law firms surveyed outsourced legal work. This is up from a figure of 3,7% in 2010 (TS Clay ‘Law firms in transition’ 2013 Altman Weil Report (www.altmanweil.com, accessed 9-5-2014)).
Any firm that has clients operating beyond South Africa’s borders should, therefore, have a strategic plan that includes a focus on internationalisation. Without such a focus, the firm will probably lose clients to a firm that has started making progress towards servicing the clients’ international needs.
Economic trends
Any business operating in South Africa, law firms included, are first and foremost influenced by the economic trends existing in the country at the time. Different industries are impacted differently, and even different sectors of an industry may be impacted in different ways.
Globally, the legal industry is still feeling the effects of the 2008 financial crisis. After the financial crisis, law firms were under pressure not only with fees they charged, but other market forces started to play a role, forcing various far-reaching changes on the legal industry. Some of these market forces include:
Mr Susskind calls this the ‘more-for-less’ challenge: Law firms are under pressure to deliver more services at less cost. This has resulted in a ‘buyer’s market’ where clients have more power to negotiate fees, which tends to increase the levels of competition between firms (Susskind op cit).
It is no use arguing that the legal profession is different, and therefore somehow immune to these market forces. I admit that, as a profession, legal practice is subject to certain unique and specific ethical duties, regulation and restraints, but the industry itself is still subject to the same economic forces as any other industry.
In South Africa, the trend pertaining to the general financial climate is not much different to that being felt in other jurisdictions. As shown above in figure 1, the effect of the 2008 financial crisis is still being felt by law firms, albeit in different ways, depending on the area of law in which the firm operates.
Figure 1: South African economic figures 2005 – 2013.
It is also interesting to note that, despite a peak in the number of summonses for debt during and after the crisis (in 2009), litigation work declined from there. This effect seems generally to have been felt by most legal practitioners.Figure 1 above contains a summary of data obtained from Statistics South Africa for the period January 2005 to June 2013, relating to the number of summonses issued for debt (green line), total insolvencies recorded (red line) and the country’s quarterly GDP figures (blue line). The linear trend lines show two interesting patterns: As the GDP declined over the period from 2005 to 2013, the number of insolvencies increased, with a major spike shortly after the financial crisis, during 2009 – 2010. On the other hand, as GDP declined, the number of summonses issued for debt also declined.
From a strategic point of view, this means that firms should take into account the current economic climate in which they operate, but also the climate which they foresee over the medium term, and position themselves in such a way that they can maintain income levels, whatever the state of the economy. This of course, may be easier said than done, but it is this aspect, in my view, that will differentiate good law firms from those that are merely surviving.
Conclusion
Clearly there are various trends and factors influencing the legal industry at this stage. Firms should be aware of these trends so as to meet them properly in order to ensure their continued growth.
More importantly, however, firms should continuously be aware of new trends influencing legal practice, so that they can timeously prepare for such changes and position themselves accordingly. Only if this is done consistently, can firms continue to grow and prosper.
Ben Groot LLB (UJ) is an attorney at Ben Groot Attorneys Inc in Bellville.
This article was first published in De Rebus in 2014 (June) DR 20.
