Current economic conditions affecting the legal profession
Author: Ganesh Natarajan, President, DWF Mindcrest
COVID-19 has brought the world economy to a standstill. With almost 3 million confirmed cases and more than 200,000 deaths as of today, this pandemic has changed the arc of our lives. Currently, countries and local governments are trying to figure out when to open their respective economies, how to open the economies, what sectors should open first, and how to provide some relief to their citizens. All of this is happening under the twin spectres of the pandemic that can take lives on one side and economic deprivation and even starvation on the other. This is a Hobson’s choice and hopefully sagacious minds will prevail.
The current economic situation is grim. There is no sugarcoating this. The United States has seen millions of unemployment claims. Economists predict that the U.S. economy will shrink by 3% to 7%, which is greater than what we saw under the Great Recession. Recovery will be in fits and starts with the economic downturn continuing until we develop and distribute a vaccine against this virus. Businesses will be affected differently depending upon their industry. Companies in the travel and hospitality sectors have been significantly impacted, such as airlines, cruise lines, hotels, food and beverage companies, retail companies, automobile companies, the list goes on. Of course, small retail businesses, restaurants, food service providers, entertainment, museums, not-for profit groups will all see severe contraction or extinction of their services until a permanent cure is found for this virus.
Broadly speaking, companies will have to rethink their business and operating models. Is it necessary to have as many physical offices? Is just in time inventory helpful in a pandemic situation? Is the go-to-market strategy nimble and flexible enough to adjust to severe external shocks? With a more agile workforce, how does a company train, develop, and retain its employees where their physical location does not matter? Each company will grapple with these issues and come to their own conclusions and take appropriate action. The winners will be those that can think through all of these issues and develop and execute finely calibrated plans.
What does all of this mean to the legal business?
The legal business is dominated by four sets of players: law schools, in-house legal departments, law firms, and alternative legal services providers (ALSPs). The walls that exist between these legal departments, law firms, and ALSPs will become porous with work flowing between and among these groups in a seamless manner. Distinctions between in-sourcing and outsourcing will diminish. Technology development through the use of AI tools will accelerate and will be deployed with greater urgency. However, at the front end of the legal profession, law schools will undergo significant changes affecting the supply of lawyers.
Could we have imagined at this time last year that the entirety of American higher education is being conducted through online courses? Law schools have long resisted online courses as not being conducive to the Socratic method of teaching. Now, that is ancient history. On the other hand, law schools have built fancy brick and mortar buildings and must recoup these investments through fees charged to students. However, with increased online courses, will students pay high school fees going forward? Will this result in winner and loser law schools and reduce the number of lawyers entering the system with significant downstream repercussions?
This pandemic has exposed existential threats to all economic activity. Legal departments have been front and centre in dealing with the pandemic threats that continue today. The company will place greater burdens on legal departments to prepare and plan for such threats in the future, including future waves of COVID-19. Legal departments must look at their supply chain in imaginative ways. In the past, in the face of such threats, law departments have taken baby steps. Now is the time to be bold and imaginative. Knee-jerk resistance to technology must change to a judicious embrace of technology. Agile companies will respond to this new normal by inventing better AI tools and processes. The pandemic has also allowed law departments the flexibility to utilize these tools across the entire supply chain. Legal departments should deploy these new generation tools to get rid of an exclusionary mentality and demand collaboration between legal departments, law firms, and ALSPs in a seamless manner.
The vast majority of law firms are still stuck with the partnership model. Given the new normal brought on by the virus, law firms should begin to move away from the partnership model. While legal expertise and a brand name will continue to help law firms at the top of their respective markets, the pendulum is swinging towards the delivery management of legal services. Instead of paying lip service, law firms should embrace technology. Of course, technology cannot supplant legal expertise, but it does make it easier to access legal expertise and help deliver the work much more productively and cost-effectively. Legal departments are already encouraging greater collaboration between law firms and ALSPs and will demand such collaborations in the future.
Alternative Legal Services Providers
ALSPs with global footprints, significant technology, strong project management, and sound people management capabilities will become key players in the future. By providing enterprise level service and working collaboratively with legal departments and law firms, ALSPs are changing how legal work gets done in a more efficient manner. The success of individual ALSPs will depend on how they execute on a daily basis. The pressure on ALSPs to embrace and showcase technology will be acute as technology is an integral selling point of the ALSP model. Also, strong people management is critical for ALSPs where teams are working from home, especially as ALSPs are held to more stringent SLAs than their law firm counterparts.
COVID–19 has permeated every corner of the Earth and has disrupted our lives completely. It has created an economic onslaught on our very existence. The recovery will be slow and in fits and starts. Companies will be forced to rethink their business models or face the prospect of going out of business. The legal business will not be immune from these pressures and will face a greater burden as the key player in protecting the company from threats. This means that legal departments, law firms, and ALSPs will be forced to change and embrace technology, discard barriers between in-sourcing and out-sourcing, abandon geographic barriers, and work collaboratively.
Until there is a vaccine, COVID-19 will continue to haunt us. Therefore, the ability to withstand recurring lockdowns with sufficient cash in an uncertain marketplace will pose the greatest challenge to businesses across industries.