- Professional Indemnity Insurance
The Knowledge
,
8th April 2024As alternative operating structures take off, so do new risks
The legal profession looks a lot different than it did a decade or two ago. Developments in technology are transforming how legal work is done, who can compete in the marketplace, and what clients expect for their money. The new generation of legal professionals has different expectations of their employers and more choices about where and how to work, so they can be more selective about where they build their career. The convergence of these shifts is pushing firms to evolve as employers into more holistic advisories that can partner with clients to solve wide-ranging business challenges.
“It’s clear that the legal profession is changing, with technology making law firms reassess how they complete work, train new lawyers, and provide value to clients who understand how firms can use technology to support and expedite legal work,” said Sharon Glynn, director of underwriting at Travelers Europe. “New opportunities are emerging from this, along with changes and risks that firms and lawyers themselves have to navigate.”
Redefining what success looks like
To varying degrees, law firms are making employee- and client-facing changes to accommodate the evolving marketplace. Some firms are embracing broader possibilities for career progression within the organisation, or are acknowledging that a one-size-fits-all approach to climbing the ladder within a firm doesn’t match the priorities of the next generation of legal talent. For example, research has found that while new lawyers continue to be financially motivated, they are voicing more concerns about sacrifices to their wellbeing than previous generations of lawyers did. This has spurred some firms to develop shorter paths to partner, allow lawyers to bill fewer hours, and make it possible for employees to become non-partner professional lawyers.[1]
Similarly, a report from PwC that documents the “rise of the non-linear lawyer” points to an increase in the number of legal professionals who are less defined by their identity as lawyers. Instead, they see themselves as legal facilitators who partner with the business to generate revenue. Along the way, they have career trajectories that may sound unconventional, with stints at start-ups, legal technology vendors, or disparate business areas within a firm.[2]
This is changing how firms provide continuous learning and development at the team level. At a time when technology is reducing the need for new lawyers to pore over reams of documents as a means of building legal and institutional knowledge, a focus on new ways of training is helping these employees keep a finger on the pulse of changes in the marketplace, develop a more holistic business perspective, and identify additional ways to provide value to clients. It may also expose them to new mentors and areas of expertise as legal teams become broader and more cross-functional.
On the client side, firms are finding ways to develop deeper relationships and partnerships that provide value. Some are exploring alternative fee arrangements including subscription models, for example, to improve cost predictability and forge stronger connections with clients.[3] They are also focusing on enhancing communication with clients – through developing dedicated client relationship managers and teams, strengthening the mechanism for collecting client feedback, and training teams on softer skills that can make clients feel heard and understood.
Staying abreast of opportunity while monitoring risks
These changes can generate new opportunities for legal professionals and revenue streams for firms. Still, there are important risks to consider. That’s especially true as advances in generative artificial intelligence (GenAI), in conjunction with the automation tools that have long been used in firms, are making it possible for firms to complete work faster and more efficiently than before. But while AI-supported tools have the power to dissect mounds of data in seconds, predict the outcome of litigation, and create more tailored services for clients, they have also revealed their potential for introducing bias and outright inaccuracies – and organisations offering legal services must have mechanisms in place to manage these vulnerabilities. At the same time, AI is levelling the playing field in the market for legal services by creating entry points for smaller firms, corporate law departments and other organisations that were unable to compete with larger law firms in the past. These changes are putting pressure on law firms to adapt from within while keeping an eye on new sources of competition.
Beyond using technology to support client services, firms may also be motivated to expand into new practice areas in a competitive market. While this can generate opportunities for firms to cross-sell complementary services and more easily weather downturns in specific practice areas, it can also expose a firm to risks. This is particularly true if a firm enters less familiar practice areas where it doesn’t have the appropriate institutional knowledge or staff training in place. The internal and external pressures of the current landscape may push firms to make business decisions quickly, yet they also require firms to have a higher level of vigilance concerning emerging risks.
“To succeed in this environment, law firms must juggle an evolving range of demands,” said Glynn. “They have to make thoughtful decisions about the legal services they offer, make appropriate investments in technology to support their services, consider how the adoption of new tools will impact legal services and clients’ perceptions of their services, and develop the kinds of workplaces where new legal talent has opportunities to learn, grow and strike a sustainable work-life balance. As an insurer, we help law firms stay aware of the risks inherent in this changing market so they are in a stronger position to seize the opportunities before them.”
