Law firms grapple with ‘how to innovate’ question
A law firm set an unusual mission for its staff last year: to boldly go where they had not gone before. Baker McKenzie’s Reinvent challenge was set up to promote innovation across the organisation, and the inspiration was outer space.
Participants, known as “BakerNauts,” went through a range of training and exercises before tackling some challenging problems faced by clients. Among the prizes on offer to staff were opportunities to speak to astronauts and visit space centres.
This creative effort is one example of how the legal industry is responding to developments in legal tech and new client demands by working to deepen its own innovative capabilities.
For Baker McKenzie, the Reinvent challenge was a way to tackle a perennial conundrum. “We were trying to crack the age-old problem with the billable hours model, which is how to incentivise your fee earners to dedicate time to projects that don’t have an immediate financial benefit,” says Ben Allgrove, chief innovation officer.
The response revealed an appetite for skills training across the firm, with 600 signing up for the challenge, including more than 100 partners, which he admits was “well above our expectations”.
The next step, Allgrove adds, will be to encourage this cohort of innovators to make connections across different areas of expertise, from legal services and project management to data analytics and e-discovery. “There is still a gap in the legal market — and Baker is no exception — for that connector skill,” he says. “We have people who do it now, but it’s not their job.”
As other law firms grapple with similar questions, some are starting to examine the way they are structured. At Freshfields Bruckhaus Deringer, a single client delivery group now manages innovation.
“We had a number of innovation, legal tech, service delivery and project management across the firm that had grown up to respond to changes in legal tech or to client demands,” explains Olivia Balson, who leads the group globally. “The idea was to integrate them into one team, to embed them in a more integrated service, and from there to expand their capabilities.”
She sees advantages in uniting diverse groups of people around innovation: “You get a more coherent and collaborative approach by bringing the teams together.”
By contrast, Womble Bond Dickinson has taken a decentralised approach. It has developed a two-tier structure that supports different types of innovation, explains Sam Dixon, partner and head of innovation. The aim is to “empower people so that they have a chance to be heard, to participate and to make a difference”.
For routine problem solving, teams can use the first tier of support: a toolkit providing information sheets, an online chat function and video demonstrations. This allows business units to develop their own ideas on how to increase efficiencies or automate processes.
The second tier supports innovations that address more complex challenges. These are ones that might need help from developers, require integration across multiple internal systems, or involve regulatory compliance and reputational risk management. Here, the support is more tailored and might offer connections to IT experts and others in the firm who can help.
“With a centralised team, there’s a risk that innovation is seen as something someone else does,” says Dixon. “We want everyone to take the time to reflect on what they do day-to-day and how that could be improved.”
For DWF, an organisational shift from a partnership to a listed company called for a different approach to innovation. With new stakeholders — internal shareholders and external investors — the firm needed to ensure innovation could deliver long-term value.
This meant turning to “horizon scanning” — a systematic approach to uncovering early signs of change — to spot emerging opportunities and markets trends that might demand innovative responses. DWF developed an approach that assesses ideas and, if approved, supports their development and measures their impact.
Jonathan Patterson, who leads innovation and ventures at DWF, says the aim is to treat innovation as a core part of the business. This requires allowing it to flourish freely while managing the overall process more strategically. “It’s giving it some structure and depth without damaging the entrepreneurial spirit,” he explains. “That’s a delicate balance.”
The pressures for embracing innovation include changes in client demands to the adoption of more strategic approaches to delivering legal services. One of the most powerful, however, is the war for expertise.
Balson says her firm’s client delivery group plays a positive role in attracting and retaining skilled employees. Assembling a broad array of skills “creates an inclusive way of working”, she says. “It’s appealing to operate in that way.”
Ultimately, says Allgrove, a shortage of skills will prompt another kind of innovation: business model innovation. “You’ll have to pay more and more for people to keep doing the business the way we’re doing it, and you can’t charge more and more, so margins will be eaten away,” he says. “That’s driving the need for change.”
Case studies in best practice: Using data; Innovation strategy; and Managing complexity
Researched, compiled and ranked by RSGI. ‘Winner’ indicates the organisation won an FT Innovative Lawyers 2022 award.
Using data
Winner: Cuatrecasas
Originality: 6 Leadership: 8 Impact: 8 — Total 22
The firm uses data to increase efficiency through automation, both internally and for clients. Data analysis is used to assess return on investment in marketing, identify business development opportunities, and enable more informed feedback to lawyers about performance. Presentation of data through dashboards has been particularly valuable to clients in large litigation cases.
Standout
Orrick
O: 6 L: 8 I: 7 — Total 21
The firm’s European technologies group worked with the in-house data team to develop a tool that uses artificial intelligence to analyse venture financing deals. It drew on 500 instances of proposed terms and conditions that the firm had on file from the previous year. It compared the data with broader market information. As a result, the team identified market trends such as liquidation preferences, or the rights of majority vs minority shareholders. The subsequent report will be useful for clients and lawyers negotiating venture capital deals.
Sorainen
O: 7 L: 7 I: 7 — Total 21
A special group at the Baltics firm manages relationships with other law firms — in particular, by drawing on information generated by its bespoke client relationship management system.
The firm credits as much as half of its revenue growth since the start of 2021 to the data-led approach, which had helped to maximise the amount of new business brought in by allied international law firms.
Travers Smith
O: 7 L: 7 I: 7 — Total 21
A corporate transaction typically culminates in hours being spent creating a “bible” of all related documents. But the firm has developed a tool that automates this process, saving time and creating a centralised platform where documents can be accessed. The project also involved uploading 4,500 “bibles” of past transactions and digitising them in HTML format to make them easy to search.
Weil, Gotshal & Manges
O: 7 L: 7 I: 6 — Total 20
In December 2021, the firm launched a European corporate “distress index”, which used individual company data as well as financial market indicators from the past two decades.
It found that leveraged loan pricing was likely to increase in line with the rise of corporate distress cases, while default rates would spike after a time lag. The index will be updated quarterly.
Commended
Charles Russell Speechlys
O: 6 L: 6 I: 6 — Total 18
The knowledge management team used AI software to replace the laborious manual review of share purchase agreements. This saves time and turns document terms into useful data, giving lawyers an edge in negotiations over purchase agreements.
Innovation strategy
Winner: DWF
Originality: 7 Leadership: 9 Impact: 8 — Total 24
Instead of running the innovation team as a separate subsidiary, the firm has set up a corporate function called Innovation and Ventures. The structure allows senior executives to make fast decisions on new business opportunities. The strategy is to focus on identifying market trends, especially in new tech, and convert at least half these findings into projects.
Standout
Baker McKenzie
O: 7 L: 8 I: 7 — Total 22
Baker McKenzie ran a firm-wide competition to increase engagement with its innovation strategy. Groups of people were trained on various facets of the approach before developing ideas for new solutions to improve the firm’s services. The initiative had an “outer space” theme to make it more engaging, and each group had to include at least one partner in order to maximise the impact. Overall, 600 people took part, including 135 partners.
Freshfields Bruckhaus Deringer
O: 7 L: 8 I: 7 — Total 22
Freshfields’ client delivery group integrates its various innovation teams, which are focused on legal technology, project management, design and non-traditional resourcing models. This allows those capabilities to be embedded across the firm’s legal practice groups. The client delivery group comprises 350 people, including relationship managers who work with other practice groups to remove the burden of implementing new technologies and systems.
Mills & Reeve
O: 7 L: 7 I: 8 — Total 22
The firm has implemented a “fearless feedback” policy across both client surveys and discussions within the firm. The initiative helped identify behaviours that would improve dealings with new clients and overall experience, plus changes in IT to help lawyers manage pricing and billing.
Littler Mendelson
O: 6 L: 7 I: 8 — Total 21
The firm has rolled out several new services to strengthen its appeal in Europe. The firm offers clients bespoke “digital workspaces” using the various technologies Littler has in its stack. It has also published guides for clients including a comparison between laws in EU countries on Covid-19 restrictions. It also ran a survey examining shifts in views among European businesses on employment topics.
PLMJ
O: 6 L: 8 I: 7 — Total 21
The firm ran a campaign to increase take-up of its legal tech tools by all its practice groups. A committee also gathered feedback across the firm to help identify how best to invest in tech over the next few years. This review included benchmarking IT strategy against other firms and identifying short-term priorities, such as introducing e-learning tools and software for dealing with new clients.
Commended
Deloitte Legal
O: 7 L: 8 I: 5 — Total 20
The Spanish arm of Deloitte Legal has developed an innovation team that uses design thinking to create tech-based legal solutions. The firm has also developed a virtual reality office environment for clients and staff and a programme to train lawyers in the use of digital tools.
Womble Bond Dickinson
O: 7 L: 7 I: 6 — Total 20
The firm encourages innovation across the business. While some projects are left to individual business units, others are backed with centralised support. It has developed a searchable “toolkit” of technologies to help people find the right tech for their ideas.
Morais Leitão, Galvão Teles, Soares da Silva & Associados
O: 6 L: 7 I: 6 — Total 19
The firm’s innovation strategy focuses on improving internal efficiency and profitability, enhancing its clients’ experience and understanding emerging commercial and legal challenges. The firm has partnered with Lisbon’s Nova University business school to provide training programmes for its lawyers and the wider business community.
NautaDutilh
O: 6 L: 7 I: 6 — Total 19
The firm has embarked on a professionalisation strategy. This includes formalising client feedback discussions, performance reviews and compliance strategies. It has also improved discipline on lawyers filling in time sheets and has created a centralised system for storing data on client engagements.
Vieira de Almeida
O: 7 L: 7 I: 5 — Total 19
In a joint venture with Lisbon’s Nova University Law School, VdA has established a centre for emerging legal research topics, including disruptive technology, smart cities and climate change. The centre aims to offer scholarships and workshops as well as published research.
Managing complexity
Winner: Herbert Smith Freehills
Originality: 8 Leadership: 8 Impact: 8 — Total 24
National Grid demonstrated that publicly quoted companies can compete against private equity groups in auctions for large cash-generating targets when it purchased Western Power Distribution, the UK’s biggest local electricity network operator, for an equity value of £7.8bn. Lawyers acting for the FTSE 100 company helped keep the acquisition target separate from the utility group for a period after the deal was struck last year, allowing it to proceed without prior regulatory clearance to increase the competitiveness of the bid.
Standout
Freshfields Bruckhaus Deringer
O: 8 L: 8 I: 7 — Total 23
The firm helped ED&F Man, one of London’s oldest commodities brokers, achieve the cross-border refinancing of more than $1.5bn of debt, together with the recapitalisation of its commodities business, including the injection of $300mn in new trading finance — against tight deadlines. The work involved securing approval for a “cross-class cram-down”, whereby a restructuring plan can be approved in court despite opposition by small groups of minority creditors.
Slaughter and May
O: 8 L: 8 I: 7 — Total 23
Lord Rothermere, leading investor in Daily Mail and General Trust, bought back full control of the UK publishing group despite initial opposition from some minority shareholders. The deal eventually valued the business at £885mn including debt and ended a 90-year history on the London Stock Exchange. The law firm helped DMGT navigate this complex delisting in January, which involved sales of its insurance risk division, Risk Management Solutions, and its 20 per cent stake in Cazoo, the online car retailer. Lawyers leading the transactions designed a scheme that was acceptable to pensions authorities and other regulators.
Kirkland & Ellis
O: 7 L: 8 I: 6 — Total 21
When Smile Telecoms, which operates mobile services across four African countries, sought to restructure under the UK’s Corporate Insolvency and Governance Act, the law firm delivered the first plan under the new rules to exclude stakeholders with no economic interest from voting.
This strategy reduced the costs and increased the speed of the restructuring.
Morais Leitão, Galvão Teles, Soares da Silva & Associados
O: 8 L: 7 I: 6 — Total 21
To help Portuguese wood pulp producer Altri spin out its renewable energy company GreenVolt, lawyers used the distribution of shares as dividends to avoid triggering a long and expensive takeover process. For the first time in Portugal, the firm secured regulatory clarification that the limits to distributions should be calculated on the book value of shares.
Commended
Latham & Watkins
O: 7 L: 7 I: 6 — Total 20
The firm is assisting Grail, a US cancer screening start-up, with proceedings and challenges involved in its $8bn acquisition by gene sequencing company Illumina.
DLA Piper
O: 6 L: 7 I: 6 — Total 19
The firm created a Buyers’ Report designed to help streamline the UK’s £40bn bulk annuity market.
Taylor Wessing
O: 6 L: 6 I: 7 — Total 19
The firm assisted the Roald Dahl Story Company, owner of the rights to the late author’s stories, with the complexities of its acquisition by streaming company Netflix for £500mn-plus.
Covington & Burling
O: 5 L: 8 I: 5 — Total 18
Lawyers delivered antitrust and licensing advice to media company Discovery on its tie-up with telecoms company AT&T’s WarnerMedia business. The deal, announced last year, created a venture valued at $132bn.
Pinsent Masons
O: 6 L: 5 I: 7 — Total 18
The firm helped investment management group Baillie Gifford to convert the licensing of its Irish entity into so-called “Mega Manco” status, granting the most extensive EU permissions for larger asset managers.
Sidley Austin
O: 6 L: 6 I: 6 — Total 18
When US insurance broker Gallagher acquired treaty reinsurance business Willis Re for $3.25bn, lawyers used many offices and teams to help structure the deal.