NEW YORK — How law firm are viewing the transforming wave of disruptive legal technology — as a threat or an opportunity — is the central theme of the 15th Annual Law Firm COO & CFO Forum, being held this week at the New York Downtown Marriott.
“Technology is having a significant and profound impact on the established way of doing things in the legal industry and especially within a law firm,” said James Jones, a Senior Fellow at the Center for the Study of the Legal Profession at Georgetown University Law Center and one of the co-chairs of the event.
Technology and innovation offer greater efficiencies and allow law firms to manage their practices and process more effectively, no doubt, Jones explained, but it also opens the legal market to higher levels of competition and new innovators who try to cut into market share. “We hope we can provide some insight into the trade-offs and competing factors, both positive and negative, that technology brings with it into the legal profession,” he added.
The Forum kicked off, as it does every year, with a report on the state of the legal market, compiled with data from Thomson Reuters Peer Monitor.
Jones described a market that was “fairly flat” in many aspects, such as demand growth, lawyers replenishment and firm performance. For example, demand growth through the end of the 3Q this year was less than 1%, while headcount grew just 1.5%. That dichotomy, however, meant that productivity continues to trend downward slightly, and has for the past seven or eight years, he noted.
“This is not a new problem,” Jones offered. “Law firms don’t want to be caught short if demand starts to rebound, so they are still staffing up a bit, and that keeps the downward pressure on productivity.”
Another interesting dynamic described was the contrast between billed rates and collected rates. Since 2008, billed rates have increased 21%, while collected rates, the money actually paid for legal services has increased at a lesser rate of 16%. Moreover, billed rates — which often include substantial discounting — as a percentage of the standard rate has continued to decline during the same time period, reaching less than 86% as of the 3Q of this year. Collected rates also continue to decline, falling to less than 83% of standard rates.
For large law firms, the collected rate is even worse, with the AmLaw 100 notching a collected rate of just north of 81% of standard rates.
Gretta Rusanow, Head of Advisory Services for Citi Private Bank Law Firm Group, talked about how some law firms are viewing this incursion of disruptive technology in their field as a threat to the way they’ve always done things, while others are viewing it as an opportunity to seek competitive advantage with clients who are increasingly demanding more technological prowess and efficiency from their law firms. “The firms that see this as an opportunity and who are pursuing innovation to meet clients’ needs are already seeking licensing agreements or joint partnerships with those players involved in artificial intelligence (AI),” Rusanow said. “Those firms know clients see an advantage in AI.”
Technology is drastically altering the way law firms view their business model, she explained, adding that law firms facing tight competition and more demanding clients are responding by trying to improve their operational efficiency — trying to make their practices and processes run better, cheaper and faster.
For example, firms are being more selective in the clients they serve, trying to increase the profitability of each client. “It is not just about the revenue a client may bring in the door, but how that translates into increased profits for the firm,” Rusanow said, adding that firms are also looking to improve their project management, including strictly adhering to budgets, reducing expenses and holding practices and lawyers accountable for these goals. “And this is seen throughout law firms in heightened attention to issues like staffing and reducing or redesigning office space.”
The Law Firm COO & CFO Forum continues until Friday, and will include panels to address issues such as technology investment strategies, hiring the right tech talent and using metrics and key performance indicators (KPIs) to measure the impact of a firm’s technology utilization.