Does it still make sense to describe legal services companies as ‘alternative’ when they are in the vanguard of the sector – and well placed to dominate it?
Their names say it all: from Clearspire to Atrium, to Elevate Services and wavelength.law. Next-generation law companies are focused on outcomes, not egos. There are no partner names here, as these were and are limited companies, not partnerships. They employ professional management, who may or may not have shares in the business. Like all companies, they are about increasing shareholder value by winning market share. This means competing with other commercial entities and professional partnerships.
Partners v pioneers
At the Managing Partners Forum debate on the future of partnership, leadership consultant Ciarán Fenton suggested that partnerships are in ‘boiling frog’ mode: the market is heating up and if they do not recognise that expectations around predictable pricing and flexible working practices are changing, traditional partnerships will soon be eliminated. William Wastie, head of Addleshaw Goddard’s professional practices group, countered that the partnership model was sufficiently adaptable to thrive in the changing business environment.
In a recent Forbes article, Mark Cohen, CEO of legal business consultancy Legal Mosaic, discussed ‘getting beyond the tech in legal tech’. He wrote: ‘Law is not solely about lawyers. Tech is not solely about techies. The digital age is one of cross-disciplinary collaboration.’ This is true, but the commercial competitors of law firms are already living that dream, differentiating themselves by structure, strategy and appetite for risk. Start-up incubators allow law firms to compartmentalise their investment in tech risk and convince themselves that they are ‘innovative’ when they are all doing the same thing. While even well-funded start-ups are hampered by the long tail of legal procurement, law companies – including the legal arms of the Big Four – are sufficiently well-established to deliver the disruption that the legal market has been talking about for a decade.
Elevate: diversification and diversity
At the London launch of international women’s networking group She Breaks The Law, I asked two NewLaw pioneers, John Croft, CEO of Elevate Services, and Barbara Hamilton-Bruce, head of client operations at Wavelength, for their perspectives on the legal services ecosystem.
Elevate is a global, diverse, multidisciplinary law company, embodying the cross-disciplinary collaboration referred to by Cohen. At six-years-old, it is younger than some of the ‘start-ups’ residing in lawtech incubators.
Elevate’s portfolio includes flexible and fixed-price legal services, legal consultancy and technology: the Cael suite of technology products and recently acquired AI data tool LexPredict. It provides fixed-price corporate legal services – contracts, documents, diligence – by standardising processes and adopting flexible working practices centred on outcomes, rather than the status or location of the lawyers doing the work. ‘We practise what we preach: we look for outcomes,’ says Croft. ‘We try hard to create an environment where you can bring your whole self to work. We have a few customer engagements where we have to work securely, but apart from that nobody has to come into the office.’ Of Elevate’s 1,200 employees, 750 are lawyers.
Elevate is expanding rapidly. In just one quarter it acquired five businesses: LexPredict, Sumati, Halebury, Yerra Solutions and Cognatio Law, and all the founders – three of whom are women – have joined Elevate’s management team. It funded this through debt rather than equity investment, which allowed it to expand while retaining control.
Croft believes law companies are the future – and not just Elevate, which already owns a law firm. The hybrid goes both ways, he observes, referring to DWF’s recent IPO. ‘Halebury, one of our recent acquisitions, is a law firm so we had to get an ABS licence to buy it,’ he says. ‘Although we are not a law firm, we own one now and its two partners have joined our executive team.’ The plan is to acquire another law firm in the next year – after some post-merger consolidation – to bring corporate legal clients fixed-price legal processes delivered in a familiar, law firm setting.
Along with fixed pricing replacing the uncertainty of billable hours, the rise of the law company has been supported by legal tech’s focus on contracts – moving on from software automating document production and management, discovery and diligence that dominated the previous decade – and, significantly, the emergence of the legal operations function. ‘Everything we do at Elevate is straightforward and logical,’ says Croft. ‘So why haven’t GCs done it already? Although many recognised the opportunities, heavy workloads and responsibilities meant they rarely got around to changing things. About six years ago, big companies started appointing legal operations directors and now some 3,000 major corporations have a head of legal ops.’
Legal operations is a management function that does not necessarily require a lawyer, and involves running a corporate legal department as a business. This is changing legal procurement and challenging the partnership model. ‘Traditional partnerships need to understand that buyers of corporate legal services recognise that there are more efficient and cost-effective ways of delivering day-to-day legal work,’ observes Croft. ‘Indeed, some forward-thinking law firms use Elevate’s project management technology and flexible lawyer services.’
Wavelength is another dual-entity, combining a regulated law firm with a legal engineering consultancy business, which combines data tech and legal design. Barbara Hamilton-Bruce brings significant experience in different legal business structures. She has worked in private practice, a start-up and in-house, and for two alternative business structures, one with a public ownership structure and another with private equity backing. ‘Each structure has benefits and burdens,’ she says. ‘The benefit of setting up a new structure is that you are building from today. It’s not an evolution of an existing model. That changes how you approach things. Some companies are created with the intention of being bought, others are looking to consolidate or leave a legacy. Partnership, on the other hand, is about sustainability and succession; the handover from one generation of partners to the next.’
Today’s law companies are dual entity structures which deliver legal services and legal tech services. While Mark Cohen’s Clearspire, the original legal and legal operations company, closed having failed to win over a more traditional market, the emergence of corporate legal operations has changed legal services procurement. Elevate Services, Atrium and wavelength.law, retain the law firm model that their corporate clients are familiar with (Elevate recently purchased Halebury). Their tech divisions, meanwhile, help legal departments and law firms work more efficiently by leveraging data analysis and machine learning. Perhaps these multidisciplinary structures are better placed than traditional partnerships to compete with the Big Four consultancies, which are also expanding their legal services. EY recently purchased Pangea3 from Thomson Reuters, following its acquisition of Riverview’s fixed-fee legal operations business.
Hamilton-Bruce is familiar with the challenges of scaling up a business. This is particularly valuable at Wavelength, which is consolidating its first-mover advantage and expanding its services. Although Wavelength is adding to headcount rather than acquiring businesses, like Elevate it is benefiting from the emergence of legal operations as a role and function. ‘The significant uplift in our work with corporate in-house teams is linked to the rise of legal operations,’ she adds.
Wavelength’s differentiator is that, unlike Elevate which includes a law firm within its portfolio, it is a regulated law firm as well as a law company and has offered legal services from the off. ‘The regulated piece enables us to communicate with our clients in a familiar way. It also helps with risk management, particularly when you’re dealing with client data. There is a sense of familiarity – we understand our clients’ concerns. We are similar, but not the same as we are also a company.’
Every week companies are offered new ways to buy and manage their legal services, some from ‘innovative’ start-ups, and some from law firms, which, like law companies, are looking to offer clients the legal services they know and trust in affordable and accessible ways. Most importantly, everyone is trying to brand themselves as different. Some partnerships have indeed closed the gap by introducing commercial capital models, including IPOs and employee equity ownership. Internal processes are changing too. Magic circle firm Clifford Chance recently announced that its Middle East offices are trialling a new assessment system where compensation and bonuses are no longer based on billable hours, although lawyers will continue to record their time and monitor how it is spent.
This is all encouraging, but for some traditional firms it will be too little, too late. Although companies will still turn to law firms for specialist and bet-the-company advice, the law companies have already changed the market, bringing financial acumen, management capability and an appetite for risk. They are not just selling into law firms; they are using technology and flexibility to compete for business.
The legal industry’s discomfort with change, notwithstanding the lip service it pays to disruption and innovation, is obvious from its vocabulary – we still hear about ‘non-lawyers’ and ‘alternative’ business models. In the 12 years since the Legal Services Act, is it still relevant to describe legal services companies as ‘alternative’ when they are an established part of the market and well positioned to dominate it?