Picture the scene. A darkened theatre. An expectant hush. The stage empty but for the waiting red spot.
But you’re not a professional speaker. You’re not a household name, ready to entertain with tidbits from your new book.
You’re a GC. And it’s compliance training time.
For Nishat Ruiter, this scene is not a million miles from reality. General counsel of TED, an organisation that has reinvented the conference, packaging mind-expanding ideas into pithy, spreadable talks perfect for both live enjoyment and the internet age, she is tasked with delivering legal concepts to an organisation whose stock-in-trade is communication.
‘People here love ideas. They are insatiable, curious people. It really feels that people who are at TED are there because they really feel driven to be there. I walk to the kitchen to grab a cup of coffee and I’ll be so enlightened in two minutes by the person I bump into because we’re talking about an issue or an idea or a solution that they found, and that becomes super compelling,’ she explains.
The compliance training bar is set unusually high, but rather than be daunted, Ruiter is inspired by the challenge.
‘The people at TED are working toward bringing ideas to as wide and as broad an audience as possible, but also focusing on the quality of the ideas. So then how does compliance match that? What do I do?’
She adds: ‘I would love for them… after hearing the calibre of speakers that are typically on stage at TED, including Bono, Sir Ken Robinson, Mellody Hobson and others, to hear something worth remembering and I realise the legal concepts should also represent great ideas – where possible’.
Any GC worth their salt has their finger on the regulatory pulse to spot compliance topics that will resonate with the legal and other issues facing their organisation. But the question of delivery takes something more than legal knowhow.
‘When you bring everyone on board and you share the same vision, a lot of amazing things can happen.’
Ruiter created a bespoke compliance approach for TED staff, capitalising on the organisation’s open and collaborative culture to deliver a bold, fresh, and evolving suite of training events, based around three words: relevant, compelling and empowering.
Relevant
‘If you have a picture of compliance as a living, breathing, dynamic culture, you’re learning with your organisation, you’re in constant contact with your client, and you’re learning about how to best bring relevant information to them,’ says Ruiter.
‘I also value non-legal input to frame my compliance examples. Since I view things through a legal lens, it’s helpful to hear from non-legal colleagues how to use examples based on their day to day versus my own. This helps me fit into their frame of reference so when compliance examples are brought up, I tie it to real-life scenarios that they deal with every day to ensure it fits and sounds relevant to what they go through.’
For Ruiter, it is important to customise the presentation to the audience, leveraging the trademark TED informal style of presentation and using examples drawn from a similar industry sector, so that the message lands. And that message should be a positive, practical one.
‘I don’t agree with the compliance training style of: “You cannot, you shall not”. I don’t believe that that’s as meaningful as: this is why we have to do this. This is why it’s important that we don’t fall into these traps. Here are ways to help you. Here are tools to remember. Here are some implications and cases that have arisen because someone didn’t learn how to do this. Here are examples of what you can look out for.’
But she is particularly careful to go easy on the level of detail.
‘If you ever look at a TED talk, the slides are typically used to amplify the idea that is being shared by the speaker. In legal presentations, the slides can comprise “all” of the ideas and typically fill up the frame, it’s designed with small font, and contains so much detail it is easy to lose the audience. Instead, I like to use animation and the use of simple graphics to illustrate brief points that summarise the lessons learned, hitting home with examples that are brief and to the point.’
Compelling
In Ruiter’s approach to compliance, the devil is not in the detail, but in finding a compelling format that can hold the crowd long enough to absorb the necessary points. This has led her to experiment with novel ways of delivering content.
‘To communicate an example of harassment, I created an audio podcast exercise, recording a couple of volunteers from TED in our studios. The idea was: what if two people were socialising after work, there was an interesting after-party, something happened, someone did something to someone. Rather than describing the scenario, we play the actual role-play in the podcast. We take the victim’s perspective first. Then I give them the opposite scenario. What’s the other person’s perspective? Because in every investigation that I’ve done in many years of doing compliance, there’s always two sides to the story. They hear the situation. We pause. I ask them what they thought,’ she explains.
‘I made this very personalised. I only had up to 25 people in the room. We served doughnuts. We allowed for questions. We made it intimate and we allowed for this in-person training because that is what I know will impact them. They are so creative that I needed to hold their attention with something that’s authentic and real.’
On another occasion, she ordered custom-made cookies to get the message across.
What you do must be steeped in the culture of the organisation.
‘When I first got to TED, we updated the privacy policy and needed to explain the use of cookies and consent. So, at the staff retreat, we ordered specially baked cookies that had the word “Privacy” written across them (in red of course). On stage, I had about five minutes to present the concept and explain privacy, consent and why we updated our policy. So to demonstrate, before I passed out the cookies, we made sure everyone had to “accept” them first. It made a “tasty” impression and, while I don’t know for sure, my sense is that everyone walked away understanding cookies and consent in a way they never expected,’ she recalls.
Empowering
‘One of the biggest opportunities I believe lawyers have is to move away from the “us” and “them” concept, especially for in-house counsel. Using phrases like “They would never get it” or “They don’t care about legal” or acting as if legal is better than their clients misses a great opportunity of learning for everyone,’ says Ruiter.
‘Unless you make it a “we” situation, I don’t think they’re ever going to really take you seriously and I think that it’s not going to be as compelling and as effective as if you make it an “us”. We’re all here together. We all work for the same company.’
TED has an anonymous reporting system to address internal code of conduct issues, which staff are encouraged to use. The reporting system allows for a more transparent process where anyone can raise topics of concern without fear of retaliation, a protection that Ruiter believes is very important to retain when dealing with compliance.
‘Another way to address empowerment is to ask them to help with spotting red flags. This is a concept that seems obvious but can be lost when planning training in the field. In some ways, I feel like I have 250 staff members that play part of a legal role in their day to day, because they are looking and noticing issues before they arise and that helps me address them proactively. Training should be geared to tap into their sense of what is right and how to spot a “red flag” so they can get used to identifying concerns before they become a problem. Using case studies and examples, we explore together during the training questions such as: What could they have done? Why did the person choose the wrong direction? How could they have prevented the issue from happening? When you ask questions like this, and promote an open and honest discussion, there is a different level of involvement and engagement. Honestly, it reminds me of the challenges of being a parent. You can always tell your child “not” to do something, but in my experience it is more effective to show them why it is important, present an example that is compelling and help empower them to make the right decision.’
After internal training events, Ruiter sends out a survey of open questions to uncover what resonated and what didn’t among attendees, which can then form the basis for future improvement.
She explains: ‘I wanted to be transparent. We’re always learning and it’s important to always get better. Survey questions have been: What parts did you think were interesting? Was there a part that you really enjoyed? Was there any area that was confusing? Do you have any questions? Is there anything you’d like to learn more about? Is there something that bothers you? Why or why not?’
Fundamentally, Ruiter believes it is important to employ tools that empower non-legal colleagues to take ownership of the compliance training process, rather than passively complete off-the-shelf packages that, no matter how ‘interesting’, fail to strike a chord because they are too generic to speak the language of the organisation.
‘Assume that the people in the room can actually help – if you could ask them to help do something, what is it that you’d want them to do? Then frame the compliance training around that to give them real practical tools, and go back and be your advocate. That really reframes everything. It takes away from the us-them dynamic, it hopefully will make the presentation interesting and it will hopefully make it relevant, because you’re asking them to do something and be part of the process with you. I find that when you bring everyone on board and you share the same vision, a lot of amazing things can happen.’
On the road
TED compliance has an outreach element, as the organisation also retains a code of conduct for attendees at its annual conferences. TED conferences have always been organised to present ideas to attendees in an atmosphere of respect, professionalism and open curiosity to share ideas. However, at times, individuals that attend could lose sight of this important aspect of TED, and thus the code of conduct and reporting system is set up for all attendees, vendors and staff at the conference.
‘Try to be authentic with your clients, and learn about what is relevant to them.’
‘They have always been organised with the intent of maintaining an atmosphere of open curiosity, and you can’t do that if people are trying to oversell their stuff, or bothering you because they want to take a selfie because you’re famous, or harassing you, or discriminating against you and treating you wrongfully,’ says Ruiter.
‘The way we address our code of conduct at our conference is three fold: we publish our code of conduct in our programme, we have provided an anonymous reporting mechanism to allow for reporting in a safe environment, and we provide assistance with trained advocates to help attendees, if needed, in filling out the form or addressing their concerns. We created this system to help prevent issues and address them head on if and when they occur at the conference. By doing so, it adds a level of transparency and meaning behind our code of conduct that is of fundamental importance.’
Ruiter has trained a team of TED employees who act as advocates and assist attendees, if needed, as issues arise. If an investigation arises, then TED addresses each violation on site, either resulting in a warning, loss of badge privileges from a session or event, or it could result in sending the attendee home without a refund.
‘If we don’t know about the issue then things can fester and make the experience unfortunate or uncomfortable. When you’re in an employee organisation, you have managers and you have peers and you have colleagues, and you’re hopefully in a very friendly area where you will feel comfortable and you have resources like HR and legal to help you. When you’re an attendee, while you are not at a place of work, we still wanted to provide a resource that is simple and accessible for everyone.’
‘We have a process that shows to our employees the level of care and meaning behind the words that we give, and by having a dynamic level of code of conduct for conferences, it also reflects that we care deeply about the experiences even at our external events – and we’re there to help.’
Into the future
Right now, Ruiter is at the stage of refreshing her code of conduct training to reflect this year’s legislative and regulatory changes, and is developing new ideas to keep it fresh. In addition, TED has worked with an illustrator-designer to create a simple, brightly coloured employee handbook that matches the tone of the training.
Above all, she believes, what you do must be steeped in the culture of the organisation – which means that, ideally, you should be too.
‘Try to be authentic with your clients, and learn about what is relevant to them. By doing so, it changes perspectives from “them” to “we”, and from “I” to “us”… setting a better standard and approach that ultimately is more effective overall and can hopefully drive better impact.’
Latin America can be notoriously challenging for business. Volatile politics and economics teamed with concerning corruption levels in some areas, alongside a more stable picture in others, conspire to create a complex and nuanced regional environment – which keeps those in the role of regional counsel on their toes.
Ines Bahachille, associate general counsel for Latin America at US IT company Ingram Micro, put a Sinatra-flavoured twist on her feelings about the region’s difficulties: ‘If I can make it in Latin America, I’ll make it anywhere!’
But the flipside is that having responsibility for markets as diverse as Mexico, Brazil, the South Cone, the infamous Venezuela, and others, can craft a unique set of skills for those tasked with legal responsibility at global organisations.
‘It makes you able to manage the element of surprise easily, to resolve complex situations with fast decision-making without panicking, and to see things in the proper context without the need to cause unnecessary alarm. It makes one lead by example, to inspire others to operate in a culture of integrity and to also demonstrate that local operations can actually influence the country positively,’ Bahachille explains.
‘It is important to vigilantly develop as deep a familiarity as possible with the legal frameworks and key local laws affecting the industry, but it is even more important to know what you don’t know, to have the judgement to know when it is necessary to call upon trusted local counsel and to be prepared to make adjustments to accommodate local differences when needed,’ adds Casey Furman, legal director, Latin America and Caribbean at Verifone.
Regional counsel have the opportunity to add value to the business in unique and highly visible ways, be that applying a creative approach to investments that a global company can make in local markets, or lobbying to positively impact the footprint of the industry more broadly.
‘Governments change, laws change and obviously we have to be very proactive and understand the impact that these changes may have on the business side. Our industry is evolving constantly in technology and we look to work through associations to lobby and educate both the regulators and the governments, as well as to understand the industry while at the same time ensuring that these regulations don’t have a negative impact on the business side,’ says Larissa Zagustin, general counsel for International Media Networks Americas at Viacom.
‘We’ve had many cases where there have been regulatory changes that have helped increase revenues, so the business teams have felt a direct impact from our efforts because it’s basically allowing what used to be more restrictive to be more flexible, where the business teams can now generate more revenues.’
Latin America has opportunities for growth that lend it enduring appeal for investors looking to scale in the region, meaning that global corporates continue to play an important role, despite operational challenges in some jurisdictions.
The question arises whether having legal leadership on the ground is necessary.
Viacom has been busy creating new business lines and building strategic partnerships, expanding both in scale and reach. An example is the launch of Miami-based Viacom International Studio, illustrating Viacom’s ambitions to grow its content creation across the region, producing content for its own platforms, as well as for third parties like Netflix and Amazon. The company also has a joint venture in Brazil, and acquired Argentinian television station Telefe in 2016.
‘The formats generated in Brazil and Argentina have amazing potential outside of those specific countries, so we’ve been looking to grow, take that intellectual property and expand it. Viacom International Studio is looking how to tweak these formats and export them around the world. So it starts locally, but the formats have been successful enough that we’ve been able to take them to other parts of the world where they create their own version,’ says Zagustin.
‘We’re not just getting a pipeline of content from Viacom centrally, we’re creating our own content within the regions within our division. We are also establishing great strategic partnerships with third parties and that’s where it has been a great opportunity for my whole team to engage in business strategies that are not the typical way of producing content.’
As in other regions, being a flexible and creative business partner is the universal key to demonstrating value to the business – while, of course, keeping a firm steer on the ethical and compliance elements.
‘New issues, some foreseeable and others not, arise regularly, and solving them takes forthright communication and collaboration with the executive team. Getting to that place of communicating effectively and solving problems collaboratively is about gaining trust. It is also crucial to have a strong commercial acumen. As legal counsellors, we need to keep in mind that we are here to be solutions-oriented and to make business goals happen. When executives know that you have that mindset, it makes collaboration and communication much easier,’ says Furman.
But having that unique dual vantage point of both a legal and business lens can be especially useful in Latin America.
‘We have to recognise that some situations are non-typical or “non-common sense” sometimes, and that is when the set of skills of a counsel in charge of this region becomes very relevant,’ says Bahachille.
‘Once you gain the trust of the business, it is important not to overthink and just be truthful and authentic about the challenges and potential solutions. The key is to always keep in mind that we work for a company and not for specific individuals.’
Like elsewhere, the progression of in-house counsel to a position of business partner in Latin America has been most pronounced over the past decade.
‘Nowadays the general counsel is sitting at the table with the business and engaged and involved from the start of any type of strategic goals for the company. I would definitely think that the evolution in the past 10 years has gone in the direction where my team and myself have been high contributors to the business side. And when you’re engaging outside counsel in the region, they’ve also gone in a direction of still acting as lawyers but being also more business-friendly,’ explains Zagustin.
With both Bahachille, Zagustin and Furman all based not in Latin America itself, but in Miami, the question arises whether having legal leadership on the ground is necessary. But Bahachille, dual-licensed in New York and Venezuela, and responsible for a 13-strong team of people based in the US, Brazil, Mexico, Peru, Colombia, Argentina and other Latin American countries, thinks not:
‘We are a global world and technology allows everyone to see what happens around it. I report directly to the global general counsel, and at the same time I am very close to the senior business leaders on different levels. Encouraging regional initiatives is always positive – trying to leverage learnings across markets and influencing the team to work together as one,’ she explains.
Furman agrees that technology is a boon: ‘We use systems to track the status and progress of projects, manage litigation and oversee external counsel spend. We are also implementing a new contract management system that will help us to better collaborate among our legal team situated across the globe and to service our business users.’
Among the most pivotal roles that a regional counsel can play is that of applying specialist local knowledge and judgement to connecting the dots between the region and the global business.
Says Bahachille: ‘The beauty of being an in-house counsel is that we see the whole picture – and if we are not in that place, we have to learn how to do it. Being a regional counsel is a complex and yet a fun role, as long as we enjoy what we do and we are not afraid of standing up for what is right and trying to grow the business at the same time.’
As corporate leaders, in-house counsel are faced with the challenge of determining which new technologies can bring the biggest impact to their operations. As we hear from in-house lawyers and others who have contributed to this survey, AI and other forms of technology can enhance in-house legal departments in many ways: due diligence review, first-draft contract preparation, contract management, legal operation analysis, litigation analysis, legal research and much more. AI can create efficiencies in previously labour-intensive legal processes, and therefore provide counsel with the luxury of time for problem solving and applying legal judgement and analysis.
But the pace with which technologies are developed necessitates a complicated analysis of return on investment, and whatever path is chosen is always done so with risk.
These new processes will certainly influence change within in-house departments and law firms alike. Focusing on where time is best spent and developing a strong base objective is only the tip of the iceberg as these developments continue. Going forward, the legal leaders in organisations will be constantly tasked with seeking technologies that best fit their unique business needs and objectives.
The key for decision makers will be to strategically choose and implement systems and processes that unlock the true potential of their teams, and point the way to the future of their organisations. It will require a change of mindset.
As a strategic business partner to in-house counsel and our members, WSG makes technology and innovation a cornerstone of its core service objectives. With immediate access to distinguished professionals and the real-time sharing of leading-edge information, we support firms and clients in their ability to capitalise on business objectives.
As customers, professionals in and around the legal profession – such as those leaders featured in these pages – will be arbiters of the success, or otherwise, of new tools, applications and services. Professionals such as these are at the helm of this potentially unbounded – yet risky – integration as machines and humans share everyday challenges.
WSG congratulates those who participated in this report, and thanks them for their keen analysis of new technologies – and the future of the industry.
Between the reams of paper (literal and virtual) spent discussing the question of how technology will affect the legal profession, as well as the thousands of legal tech companies springing up around the world, technology is on the minds of in-house teams of all sizes and from all sectors.
But, often, what isn’t communicated is exactly how in-house counsel feel about the technological revolution hitting their profession and how their teams and businesses have responded – if at all.
To that end, GC magazine in partnership with World Services Group went out to a selection of elite general counsel from across Europe with a comprehensive survey covering all things related to the use of legal tech at in-house teams.
The responses came from a vast selection of in-house counsel in a diverse range of industries. From finance and insurance, to healthcare and IT, the opinions collected and presented in this report paint a fascinating picture of the contemporary state of technology within the in-house legal community in Europe.
These responses, explored in detail in this report, provide a valuable framing of the wider discussion about technology and its various applications, both from the perspective of an in-house remit, as well as a broader look at its impact on the profession. From the pressures on external advisers to get ahead of the technological curve, to the so-called revelation of blockchain and its predicted effect on how legal work is conducted, the topic is vast.
It’s evident that technology is already making an impact on the profession. Of those surveyed, 84% of in-house respondents reported that they use some form of specialised legal technology within their legal department, with 82% revealing that their department’s use of technology had increased in the past five years. For a profession that’s often accused of being filled with technological laggards, that’s a significant change, and one which only stands to become more pronounced when you consider that every single survey respondent acknowledged that technology can enhance outcomes for in-house departments.
there is clearly an appetite for the kinds of solutions being offered in the legal tech marketplace.
At a base level, there is clearly an appetite for the kinds of solutions being offered in the legal tech marketplace. Why this need has arisen, what form it should take, and what effect this is likely to have on the profession in the long term are more nuanced questions, requiring a holistic view of not just the survey responses, but the opinions and activities of the various players in the legal tech market.
Why bother?
With over 1,400 legal tech companies around the world, the world of innovation has exploded into the lives of lawyers – in-house and private practice alike – with some interesting (and, at times, conflicting) results, not least given the notoriety of the legal profession as an outpost of conservatism.
But there is a clear need, and to predict where legal tech is going, it is crucial to understand what is driving that need for in-house counsel.
For the 84% of survey respondents who indicated that they were utilising specialist legal technology within their departments, increased efficiency was the most frequently cited factor that general counsel were considering when implementing new technology, at 84%. That was followed by ease of use at 50%, customisability at 32% and ability to integrate with existing systems at 31%.
If the pressure driving the push to adopt legal tech is the need to provide the business with better efficiencies and more value for money, then the cost of entry for many of these legal tech solutions is a barrier that needs to be overcome in order to gain the support of the wider business. A clear-sighted approach to tech only intensifies the imperative for a cost-benefit analysis, and, seldom a profit-centre, in-house departments know more than most about the need to do more with less.
How is technology changing relationships in the legal industry?
The headlines are fraught with impending doom and gloom for lawyers today. The reality is that there are only a handful of law firms racing to implement the latest innovations that technology has to offer. Law firms are slow-adopting, service-based partnerships driven by providing the best value to their clients. It is the relationships that hold the most significance for both in-house counsel and law firms alike. Therein lies the reason why, ultimately, the true drivers of change within firms are their clients.
In-house counsel can better identify reasons to pressure firms to evaluate their processes, and firms are doing just that to find opportunity. However, it is the re-evaluation of simple processes and the use of current technology within the firm that can bring enormous gains in creating better efficiencies without ever adopting anything new.
For the leading firms who are a part of World Services Group (WSG), being able to leverage innovative technology with firm relationships globally is just one resource that has enhanced the speed with which firms can react to in-house needs. Though technology will continue to play an incremental role in the firm’s evolution, it is the ‘people’ that will continue to be the key to success in the legal industry.
Like the motivation for WSG, which is to create a powerful relationship-based network among the premier firms in each location of the world, it is not the technology, but the access to important technology, that will be paramount. There will be no ‘robolawyer’ to take away the personal relationship required between in-house counsel and their advisers to achieve true results. It is the proven, results-focused relationships that are becoming the true innovation.
Firms are not losing business because of their lack of cutting-edge tech, but they should take time to analyse processes, investigate new technologies and invest in access to long-term solutions for their clients. That is what will retain ongoing, long-lasting client relationships in the face of an increasingly tech-heavy world.
‘To remain competitive, we need to increase productivity while enhancing the quality of legal processes against an ever decreasing cost base. In order to achieve this there is no other solution than to embrace technology,’ explains Johan Huizing, associate general counsel EMEA at Itron.
It was common refrain to hear a willingness from general counsel to adopt legal tech solutions throughout their department – but getting buy-in from the business and the necessary budget to execute was a clear hurdle for many. While 70% of the in-house counsel surveyed for this report felt that their company was supportive of implementing new technologies, only 56% had seen this translate to a bigger budget allocation on their balance sheets.
‘If you consider that it’s a strategic issue for you, probably it’s better to internalise, or to invest into some legal tech and then to see the results. I mean invest in terms of putting money into external projects, not only buying a product or a service,’ advises Professor Christophe Roquilly, dean for faculty and research at EDHEC Business School.
But for teams with a smaller head count in particular, taking that first step was often the hardest. Teams with smaller headcounts had the worst rate of uptake of technology, with 42% of departments with less than ten people saying that they didn’t use any legal technology at all. They were also less likely to have received an increase in budget for technology over the past five years, with only 47% reporting an increase in budget for technology (compared with 57% overall). Yet, in many cases, it was smaller teams who thought they stood to benefit the most from tools that can deliver better bang for the buck.
‘There is still the need for smaller teams to provide increased efficiencies, but the budget doesn’t allow for it. It’s then left to us to find ways to use technology to provide efficiency, but essentially for free. That’s not to say it can’t be done, it’s just more difficult,’ said one general counsel from the consumer goods sector.
Some corporates we spoke to were lucky – or large – enough to have internal resources for tackling bespoke software development projects, or budgets for cultivating start-up arrangements – though the latter is much less common for in-house teams than for law firms. But whatever the infrastructure or budget available, investment in tech requires bravery, given the unpredictable return on investment and, in many cases, the long-term nature of that return.
But while budget proved to be one of the biggest predictors of tech use and implementation within in-house legal departments, communication and demonstrating the value – particularly for larger companies which required a higher degree of coordination across existing systems – was also proving a challenge.
the predictive power of technology is encroaching on the legal system itself.
‘Money is nice, but implementing a new bit of technology will require the cooperation of the whole business – from the board down to the IT department. So money is something, but it’s not the only thing,’ explains one general counsel from the utilities sector.
Types of tech
The legal applications of technology are vast, ranging from the rudimentary to the complicated. Generating by far the most interest among those surveyed were the basics: for example, the most commonly cited use of technology was for contract management, from 55% of respondents.
But technology can provide legal departments with solutions far beyond a contract management system (often little more than a repository of documents) or a standard contract template.
Software for law firm relationship management, including e-billing and increasing transparency around legal spend, is often seen as a boon, and such tools can be make or break for a frictionless relationship. At present, 20% of respondents cited that their use of technology included tools for law firm relationship management, but based on the interviews complementing the quantitative research, this is an area that appears to be prime for expansion in the short term.
‘We demand use of our billing platform and insist that our rules for invoice submitting are followed. This has increased our understanding of the drivers for outside legal spend and budgeting and resulted in a better control of such spend,’ explains Huizing.
‘We move away from firms that are low performers when it comes to the use of our billing solution or that execute poorly on following our instructions for entering reports or invoices.’
At the least, technology can assist external firms to be more cost-efficient, so that those savings can then be passed on to their in-house clients. But there are more benefits to be reaped from an internal-external relationship that leverages technological solutions. Through this, the firm and the in-house department can cut through the noise that comes from two independent, far-away entities trying to collaborate with one another.
‘We’re building collaborative tools. We saw that a lot of time goes into emails and phone calls between a lawyer and a client. Now obviously that’s part of the personal relationship with the lawyer and client, and that’s not going anywhere. But if you’ve got five emails back and forth trying to describe what part of the land the lawyer is talking about, that’s just inefficiency. So by bringing both the lawyer and the client onto a collaborative workspace on [our] platform, you can cut out a lot of that needless, repetitive back and forth,’ says Ed Boulle, co-founder of legal tech company Orbital Witness.
‘The baseline is that we must be able to communicate very effectively with our external law firms. This requires that they use state-of-the-art communication and cloud-based collaboration software,’ adds Gábor Kukovecz, head of legal and operations at Diageo.
‘In the near future, we will implement a collaboration software, in which we work together with our external law firms, that they must fully implement.’
Far from being limited to external relationships though, tools and platforms which assist legal in becoming more accessible to the wider business also proved popular.
‘Legal is building knowledge management tools to get to a single source of truth – a lot of the technology we’re using, because we’re operating at scale, supports us when we need to have information held reasonably accessible, so that everybody can rely on them,’ explains Nina Barakzai, general counsel for data protection at Unilever.
IBM also has a shared knowledge platform called the Legal Community, which is used to integrate items such as contractual provisions, presentations and internal processor memos on regulations.
‘It’s a collaborative community space, and that’s very useful. You have owners, who can replace or change things on a particular subject, and it is shared with all the rest of us who are members,’ says Vincent Martinaud, counsel and legal manager at IBM.
Teams with smaller headcounts had the worst rate of uptake of technology.
Legal case management is another popular focus and 40% of in-house counsel surveyed cited case management as one of their uses for technology. This can include the basic paperwork-inducing case management tasks, but can also extend to case review administration and analytics.
Increasingly underpinning many tools is artificial intelligence (AI), as machine-learning tools are designed to quickly parse and categorise vast amounts of information, presenting it back for lawyer review in a fraction of the time taken for junior associates or paralegals to do the same.
‘I really think that our job will change, especially the analysis of documents, because of the way AI now is able to read and understand natural language – including your notes and the ability to decipher a picture, for instance,’ says Martinaud.
At the outer reaches of technology applications in the sector are predictive justice tools, employed to forecast case outcomes, including judges’ decisions – although these are by no means widespread or particularly popular among those who contributed to this report. But, as algorithms creep into our everyday lives, often unseen, the predictive power of technology is encroaching on the legal system itself, for example, in the criminal justice system.
‘[In Spain] work is being done on “algorithmic justice” – for petty thefts and things that are repetitive, the possibility of being able to come up with a first verdict, of course allowing the two parties to appeal if they don’t agree with the verdict, but releasing many human hours that could add value in more complex cases,’ says Enrique Dans, professor of information technologies and systems at IE Business School.
‘All the things related to an insurance claim, traffic problems when there’s no victims for example, these could be very well examined right now, with the current state of technology, by algorithms. You could ask one insurance company to negotiate with the algorithm of the other and get into an agreement, only bringing the human lawyers in if they are really required. That could take away a significant part of the burden for lawyers right now.’
Measuring the impact
When asked whether technology had the potential to disrupt the legal profession over the next five years, 84% said they believed that technology will be disruptive. The real trouble comes when trying to drill down on what form this disruption might take.
Just 6% of those who believed technology will be disruptive in the next five years thought that the disruption would be negative. 66% felt that it would be somewhat positive, and 29% thought that the disruption would be entirely positive.
Short of profession-changing disruption, technological tools like collaborative platforms, AI document review and smart contracts, and the increased automation that they facilitate could adjust the day-to-day lives of lawyers in subtler ways, by disrupting routine, everyday processes. However, introducing more technology often means more constraints on flexibility.
‘It does start to mean a little less flexibility and a bit more rigidity around the terms you’re putting in place and the structure of the relationships – because it has to have been thought out in advance, especially if you have multiple parties involved in supply chains,’ says Chris Wray, CLO of blockchain start-up Mattereum. ‘It’s kind of legal design – mapping out who are the parties here, what are the contractual relationships and what are the key provisions and then, given all that, once that’s clearly in mind, what is it we’re trying to automate, and have we mapped out different kinds of disputes that may arise and provided appropriate procedures for the resolution of those disputes?’
Of all current technological innovations, artificial intelligence has undoubtedly generated the most hype, and the most fear. Wherever AI goes, the image of a dystopian future is never far away, nor is a conference room full of nervous lawyers.
The reality, of course, is quite different. Some corporate legal teams, particularly those already in the tech field, or those at companies handling huge amounts of customer data are ahead of the curve. But, for many in the legal world, the future is a far-off land – for now.
‘When you hear people saying that tomorrow everyone will be replaced by robots, and we will be able to have a full, sophisticated conversation with an artificial agent… that’s not serious,’ explains Christophe Roquilly, Dean for Faculty and Research, EDHEC Business School.
‘What is serious is the ability to replace standard analysis and decisions with robots. Analysis further than that, when there is more room for subjectivity and when the exchange between different persons is key in the situation… we are not there yet.’
Much of the conversation around AI, particularly in the in-house world, remains a conversation about potential. The expanding legal tech sector is teeming with AI-based applications in development, but on the ground, even in the legal departments of many of Europe’s biggest blue chips, concrete application appears to be limited.
‘I think the US may be a bit further down the road than Europe. AI is coming, people are thinking about it, some in a partial way, but it will be developing quickly in the coming years. It may have more or less the same role as the internet had 15 years ago changing radically the way we work, but we’re not there yet,’ says Vincent Martinaud, counsel and legal manager at IBM France.
‘While the legal function may change to the extent that there are tasks we may not do anymore in the future, does that mean we will be disrupted? I don’t think so.’
Those views largely align with the general counsel surveyed across Europe on AI.
Only 9% of those surveyed anticipate AI becoming a disruptor in the legal industry within the next two years. 59% of those surveyed expected AI to be a disruptor within the next five to ten years, with the remaining 32% saying it would not be a disruptor within the next decade.
Understanding Argument – Professor Katie Atkinson, head of the department of computer science at Liverpool University
‘You can model argumentation in all sorts of different specific domains, but it’s particularly well suited to law because arguments are presented as part of legal reasoning.
It could be a computer arguing with a human, or it could be two machines arguing autonomously. But it’s basically looking at how arguments are used in order to justify a particular decision and not another alternative. We do that through constructing “formal models”, so you can write algorithms that can then decide which sets of arguments it is acceptable to believe together. That provides you with automated reasoning and, ultimately, a decision about what to do and why.</lip
It’s not necessarily trying to replicate what humans do, it’s more trying to take inspiration from how humans argue and then get an idealised version of that. There’s literature going back to the time of the ancient Greek philosophers on how people argue, so we take a lot of inspiration from that work, and also from legal theories – we look specifically at how legal argumentation is conducted.
What you’re trying to do is come up with a model that can be applicable over multiple situations and then you just feed in the specific facts of specific cases into those models to determine the decision in that case.
Looking at an idealised form of argumentation doesn’t necessarily mean that we can’t consider nuances, preferences and subjective information – all of which can also be modelled.
My own particular research has looked at how we can build these models of argument and then test them using sets of legal cases that are well known in the published literature on AI and law. Over three domains we got a 96% success rate in replicating the human judges’ decision and reasoning, and we’ve published work on that evaluation exercise.’
While the legal industry may represent a potentially lucrative market for software developers, it does not offer the potential gains of sectors like healthcare or finance.
‘In AI, we see many developments with our cars, many developments in the healthcare sector, and therefore changes in these sectors will probably come faster. In the legal field we do see changes, but I don’t think we are at the edge of it,’ notes Martinaud.
With relatively few lawyers utilising AI solutions at present (8.8% of survey respondents reported using AI solutions – with all applications being in low-level work), perhaps it’s time for a reality check.
Applications
For many in-house counsel, the chat bot is the most readily available example of how AI (in a first-stage form) can make life easier for in-house teams. At IBM, Martinaud is using Watson, the company’s deep learning AI for business. Through this platform, the legal team uses, for instance, a chat bot called Sherlock, which can field questions regarding IBM itself – its structure, address, share capital, for example. The team is also working on a bot to answer the myriad queries generated by the business on the topic of GDPR, and on a full data privacy adviser tool which can receive and answer questions in natural language.
‘These are the kinds of questions you receive when you’re in the legal department, and it’s very useful to have these tools to answer them or to ask the business to use the tool instead of asking you,’ says Martinaud.
‘An additional example of Watson-based technology that the legal team has started using is Watson Workspace, a team collaboration tool that annotates, groups the team’s conversations, and proposes a summary of key actions and questions, which is organised and prioritised.’
Another early use-case for AI in the legal profession has been the range of tools aiming to improve transparency in billing arrangements.
Last year, IBM stepped into the mix with Outside Counsel Insights, an AI-based invoice review tool aimed at analysing and controlling outside counsel spend. A product like Ping – an automated timekeeping application for lawyers – uses machine learning to track lawyers as they work, then analyses that data, turning it into a record of billable hours. While aimed at law firms, its applications have already proved more far-reaching.
Daniel Saunders, chief executive of L Marks, an investment and advisory firm that specialises in applied corporate innovation, says the technology is a useful means of monitoring service providers’ performance.
‘As someone who frequently is supported by contract lawyers et al., increasing the transparency between the firms and the clients is essential. Clients have no issue paying for legal work performed, but now we want to accurately see how this work translates to billable hours,’ he says.
‘Furthermore, once law firms implement technologies like Ping, the data that is gathered is going to be hugely beneficial in shaping how lawyers will be working in the future.’
Information management
The clear frontrunner in terms of AI-generated excitement among the corporate legal departments who participated in the research for this report was information management, which can be particularly assisted by developments such as smart contracting tools.
‘Legal documents contain tremendous knowledge about the company, its business and risk profiles. This is valuable big data that is not yet fully explored and utilised. It will be interesting to see what AI can do to create value from this pool of big data,’ says Martina Seidl, general counsel, Central Europe at Fujitsu.
Europe’s race for global AI authority
Artificial Intelligence (AI) is on course to transform the world as we know it today. A 2017 study by PwC calculated that global GDP will be 14% higher in 2030 as a result of AI adoption, contributing an additional €13.8tn to the global economy. The same study states that the largest economic gains from AI will be in China (with a 26% boost to GDP in 2030) and North America (with a 14.5% boost) and will account for almost 70% of the global economic impact. In addition, International Data Company (IDC), a global market intelligence firm, predicts that worldwide spending on AI will reach €16.8bn this year – an increase of 54.2% over the prior 12-month period.
The runners in the AI race are, unsurprisingly, China and the United States, but Europe has pledged not to be left behind. The European Commission has agreed to increase the EU’s investment in AI by 70% to €1.5m by 2020.
Closing the gap
The European Commission has created several other publicly and privately funded initiatives to tighten the field:
Horizon 2020 project. A research and innovation programme with approximately €80bn in public funding available over a seven-year period (2014 to 2020).
Digital Europe Investment Programme will provide approximately €9.2bn over the duration of the EU’s next Multinational Financial Framework (2021 – 2025). These funds will prioritise investment in several areas, including AI, cybersecurity and high-performance computing.
European Fund for Strategic Investments (EFSI). An initiative created by the European Investment Bank Group and the European Commission to help close the current investment gap in the EU. The initiative will provide at least €315bn to fund projects which focus on key areas of importance for the European economy, including research, development and innovation.
However, AI funding is not the only pursuit. While China has pledged billions to AI, it is the US that has generated and nurtured the research that makes today’s AI possible. In the research race, Europeans are striving to outpace the competition with the creation of pan-European organisations such as the Confederation of Laboratories for Artificial Intelligence in Europe (CLAIRE) and the European Lab for Learning and Intelligent Systems (ELLIS). CLAIRE is a grassroots initiative of top European researchers and stakeholders who seek to strengthen European excellence in AI research and innovation, and ELLIS is the machine learning portion of the initiative.
One main hurdle stands in the way of Europe and its run to the finish: the EU’s General Data Protection Regulation (GDPR). GDPR regulates EU organisations that use or process personal data pertaining to anyone living in the EU, regardless of where the data processing takes place, at a time when global businesses are competing to develop and use AI technology. While GDPR forces organisations to take better care of personal client data, there will be repercussions for emerging technology development. It will, for example, make the use of AI more difficult and could possibly slow down the rapid pace of ongoing development.
Individual rights and winning the race
Europe has plotted its own course for the regulation and practical application of legal principles in the creation of AI. Ultimately, the advantages of basing decisions on mathematical calculations include the ability to make objective, informed decisions, but relying too heavily on AI can also be a threat, perpetrating discrimination and restricting civilians’ rights. Although a combination of policy makers, academics, private companies and even civilians are required to implement and maintain ethics standards, continue to question AI’s evolution and, most importantly, seek education in and awareness of AI, it will be a coordinated strategy that will make ethics in AI most successful.
For Nina Barakzai, general counsel for data protection at Unilever, AI-powered contracting has proved to be a real boon in understanding the efficacy of privacy controls along the supply chain.
‘Our combined aim is to make our operations more efficient and reduce the number of controls that are duplicated. Duplication doesn’t help those who are already fully loaded with tasks and activities. Where there is confusion, it should be easy to find the answer to fix the problem,’ she says.
‘That’s where AI contracting really comes into play, because you analyse how you’re doing, where your activity is robust and where it isn’t. It’s a kind of issue spotting – not because it’s a problem but because it could be done differently.’
At real estate asset management company PGIM Real Estate, the focus of AI-related efforts has been to build greater efficiency into the review of leases, to enable a more streamlined approach to due diligence. The legal team approached a Berlin-based start-up that had developed a machine-learning platform for lease review.
‘Since we do not want the machine to do the entire due diligence, we use a mixed model of the software tool reviewing documentation and then, for certain key leases which are important from a business perspective, we have real lawyers looking at the documentation as well,’ says Matthias Meckert, head of legal at PGIM.
‘It’s a lot of data gathering and a machine can do those things much better in many situations: much more exact, quicker of course, and they don’t get tired. The machine could do some basic cross checks and review whether there are strange provisions in the leases as well.’
Similarly, transport infrastructure developer Cintra has looked to the machine-learning sphere for the review and analysis of NDAs, and is almost ready to launch such a tool in the legal department after a period of testing is completed.
‘People always find the same dangers in that kind of contract, so it’s routine work. It can be done by a very junior lawyer – once you explain to that lawyer what the issues are, normally it’s something that can be done really quickly,’ says Cristina Álvarez Fernández, Cintra’s head of legal for Europe.
Far from being a narrative about loss of control, AI in the in-house context is as much a story of its limitations as its gains.
Do you think that AI will be a disruptor in the legal industry?
‘If your own process is not really working right, if you don’t have a clear view on what you’re doing and what are the steps in between, using a technology resource doesn’t really help you. What do I expect, what are the key items I would like to seek? You need to teach the legal tech providers what you would like to have – it’s not like somebody coming into your office with a computer and solving all your problems – that’s not how it happens!’ says Meckert.
When introducing AI solutions – or any technology for that matter – having a realistic understanding of what is and isn’t possible, as well as applying a thoughtful and strategic approach to deployment is critical to gaining buy-in and maximising potential.
‘The risk is of treating new software capability as a new shiny box: “I’ll put all my data into the box and see if it works”. My sense is that AI is great for helping to do things in the way that you want to do them,’ says Barakzai.
Emily Foges, CEO, Luminance
‘The decision to apply our technology to the legal profession came out of discussions with a leading UK law firm, and the idea of using artificial intelligence to support them in document review work was really the genesis of Luminance, which was a great learning experience. For example, we had to teach Luminance to ignore things like stamps – when you have a “confidential” stamp on a document, to begin with, it would try and read the word “confidential” as if it was part of the sentence.
We launched in September 2016, targeting M&A due diligence as an initial use-case: an area of legal work in pressing need of a technological solution. Since then, Luminance has expanded its platform to cater to a range of different use-cases. The key to Luminance is the core technology’s flexibility, making it easily adaptable to helping in-house counsel stay compliant, assisting litigators with investigations, and more.
When a company’s documents are uploaded to Luminance, it reads and understands what is in them, presenting back a highly intuitive, visual overview that can be viewed by geography, language, clause-type, jurisdiction and so on, according to the user’s preferences. The real power of the technology is its ability to read an entire document set in an instant, compare the documents to each other to identify deviations and similarities, then through interaction with the lawyer, work out what those similarities and differences mean.
I view the efficiency savings of Luminance as a side benefit. As a GC, you want to have control over all your documents – know what they say, know where they are, know how to find them, know what needs to be changed when a regulation comes along, and have confidence that you have not overlooked anything. I think the real change we are seeing with the adoption of AI technology by in-house counsel is that lawyers are able to spend much more time being lawyers and much less time on repetitive drudge work. They are freed to spend time providing value-added analysis to clients, supported by the technology’s unparalleled insights.’
‘If you’ve got your organisational structures right, you can put your learning base into the AI to give it the right start point. My realism is that you mustn’t be unfair to the AI tool. You must give it clear information for its learning and make sure you know what you’re giving it – because otherwise, you’ve handed over control.’
Tobiasz Adam Kowalczyk, head of legal and public policy at Volkswagen Poznan, adds: ‘Although we use new tools and devices, supported by AI technologies, we often do so in a way that merely replaces the old functionality without truly embracing the power of technology in a bid to become industry leaders and to improve our professional lives.’
What’s in the black box?
Professor Katie Atkinson is dean of the School of Electrical Engineering, Electronics and Computer Science at the University of Liverpool. She has worked closely with legal provider Riverview Law, which was acquired by EY in 2018, and partners with a number of law firms in developing practical applications for her work on computational models of argument. This topic falls within the field of artificial intelligence and seeks to understand how people argue in order to justify decision-making. Her argumentation models are tested by feeding in information from published legal cases to see if the models produced the same answer as the original humans.
For Atkinson, a key aspect of the work is that it does not fall prey to the ‘black box’ problem common to some AI systems.
‘There’s lots of talk at the moment in AI about the issue of an algorithm just spitting out an answer and not having a justification. But using these explicit models of argument means you get the full justification for the reasons why the computer came up with a particular decision,’ she says.
‘When we did our evaluation exercise, we could also see how and why it differed to the actual case, and then go back and study the reasons for that.’
From a practical perspective, engendering trust in any intelligent system is fundamental to achieving culture change, especially when tackling the suspicious legal mind, trained to seek out the grey areas less computable by a machine. But Atkinson also sees transparency as an ethical issue.
‘You need to be absolutely sure that the systems have been tested and the reasoning is all available for humans to inspect. The results of academic studies are open to scrutiny and are peer reviewed, which is important,’ she says.
‘But you also need to make sure that the academics get their state-of-the-art techniques out into the real world and deployed on real problems – and that’s where the commercial sector comes in, whereas academics often start with hypothetical problems. I think as long as there’s joined-up thinking between those communities then that’s the way to try and get the best of both.’
British legal AI firm Luminance also finds its roots in academia. A group of Cambridge researchers applied concepts such as computer vision – a technique typically used in gaming – in addition to machine learning, to help a computer perceive, read and understand language in the way that a human does, as well as learn from interactions with humans.
CEO Emily Foges has found that users of the platform have greater trust in its results when it creates enough visibility into its workings that they feel a sense of ownership over the work.
‘In exactly the same way as when you appoint an accountant, you expect that accountant to use Excel. You don’t believe that Excel is doing the work, but you wouldn’t expect the accountant not to use Excel. This is not technology that replaces the lawyer, it’s technology that augments and supercharges the lawyer,’ she says.
‘That means that the lawyer has more understanding and more visibility over the work they’re doing than they would do if they were doing it manually. They are still the ones making the decisions; you can’t take the lawyer out of the process. The liability absolutely stays with the lawyer – the technology doesn’t take on any liability at all – it doesn’t have to because it’s not taking away any control.’
This understanding of AI as a tool as opposed to a worker in its own right was essential to framing the measured response that many of our surveyed general counsel took to the revolutionary potential of AI.
‘Depending on the role of AI, it can be an asset or a liability. However, AI will prove useless to make calls or decisions on specific cases or issues. It can, however, facilitate the decision-making process,’ says Olivier Kodjo, general counsel at ENGIE Solar.
A balancing act
The increasing prevalence of algorithmic decisions has caught the attention of regulators. A set of EU guidelines on AI ethics is expected by the end of 2018, although there is considerable debate among lawyers about the applicability of existing regulations to AI.
For example, the EU General Data Protection Regulation (GDPR) addresses the topic of meaningful explanation in solely automated decisions based on personal data. Article 22 (1) of the GDPR contains the provision that:
‘The data subject shall have the right not to be subject to a decision based solely on automated processing, including profiling, which produces legal effects concerning him or her or similarly affects him or her’.
This mandates the presence of human intervention (not merely processing) in decisions that have a legal or significant effect on a person, such as decisions about credit or employment.
The UK has established an AI Council and a Government Office for Artificial Intelligence, and a 2018 House of Lords Select Committee report, AI in the UK: Ready, Willing and Able? recommended the preparation of guidance and an agreement on standards to be adopted by developers. In addition, the report recommends a cross-sectoral ethical code for AI for both public and private sector organisations be drawn up ‘with a degree of urgency’, which ‘could provide the basis for statutory regulation, if and when this is determined to be necessary.’
Europe’s Race for Global AI Authority
Artificial Intelligence (AI) is on course to transform the world as we know it today. A 2017 study by PwC calculated that global GDP will be 14% higher in 2030 as a result of AI adoption, contributing an additional €13.8tn to the global economy. The same study states that the largest economic gains from AI will be in China (with a 26% boost to GDP in 2030) and North America (with a 14.5% boost) and will account for almost 70% of the global economic impact. In addition, International Data Company (IDC), a global market intelligence firm, predicts that worldwide spending on AI will reach €16.8bn this year – an increase of 54.2% over the prior 12-month period.
The runners in the AI race are, unsurprisingly, China and the United States, but Europe has pledged not to be left behind. The European Commission has agreed to increase the EU’s investment in AI by 70% to €1.5m by 2020.
Closing the Gap
The European Commission has created several other publicly and privately funded initiatives to tighten the field:
Horizon 2020 project. A research and innovation programme with approximately €80bn in public funding available over a seven-year period (2014 to 2020).
Digital Europe Investment Programme will provide approximately €9.2bn over the duration of the EU’s next Multinational Financial Framework (2021 – 2025). These funds will prioritise investment in several areas, including AI, cybersecurity and high-performance computing.
European Fund for Strategic Investments (EFSI). An initiative created by the European Investment Bank Group and the European Commission to help close the current investment gap in the EU. The initiative will provide at least €315bn to fund projects which focus on key areas of importance for the European economy, including research, development and innovation.
However, AI funding is not the only pursuit. While China has pledged billions to AI, it is the US that has generated and nurtured the research that makes today’s AI possible. In the research race, Europeans are striving to outpace the competition with the creation of pan-European organisations such as the Confederation of Laboratories for Artificial Intelligence in Europe (CLAIRE) and the European Lab for Learning and Intelligent Systems (ELLIS). CLAIRE is a grassroots initiative of top European researchers and stakeholders who seek to strengthen European excellence in AI research and innovation, and ELLIS is the machine learning portion of the initiative.
One main hurdle stands in the way of Europe and its run to the finish: the EU’s General Data Protection Regulation (GDPR). GDPR regulates EU organisations that use or process personal data pertaining to anyone living in the EU, regardless of where the data processing takes place, at a time when global businesses are competing to develop and use AI technology. While GDPR forces organisations to take better care of personal client data, there will be repercussions for emerging technology development. It will, for example, make the use of AI more difficult and could possibly slow down the rapid pace of ongoing development.
Individual Rights and Winning the Race
Europe has plotted its own course for the regulation and practical application of legal principles in the creation of AI. Ultimately, the advantages of basing decisions on mathematical calculations include the ability to make objective, informed decisions, but relying too heavily on AI can also be a threat, perpetrating discrimination and restricting civilians’ rights. Although a combination of policy makers, academics, private companies and even civilians are required to implement and maintain ethics standards, continue to question AI’s evolution and, most importantly, seek education in and awareness of AI, it will be a coordinated strategy that will make ethics in AI most successful.
‘From my end, it is the same old battle that we have experienced in all e-commerce and IT-related issues for decades now: the EC does not have a strategy and deliberately switches between goals,’ says Axel Anderl, parter at Austrian law firm Dorda. ‘For ages one could read in e-commerce related directives that this piece of law is to enable new technology and to close the gap with the US. However, the content of the law most times achieved the opposite – namely over-strengthening consumer rights and thus hindering further development. This leads to not only losing out to the US, but also being left behind by China.’
Anderl speaks to an uncomfortable reality nestled in among the ethics portion of the AI debate. While some remain concerned about the ethical questions posed by AI technology, this concern may not be shared by everyone. However, like most things, those who feel unrestrained by codes of ethics will be at a natural advantage in the AI arms race.
‘We are aware that if other, non-European global actors do not follow the fundamental rights or privacy regulations when developing AI, due to viewing AI from a “control” or “profit” point of view, they might get further ahead in the technology than European actors keen on upholding such rights and freedoms,’ explains a spokesperson from Norwegian law firm Simonsen Vogt Wiig AS.
‘If certain actors take shortcuts in order to get ahead, it will leave little time to create ethically intelligent AI for Europe.’
The ethics dimension also extends to the future treatment of employees. Despite headlines spelling doom for even white-collar professions, those we spoke to within in-house teams were reluctant to concede any headcount reduction due to investment in AI technology.
‘I don’t think this will replace entirely, at least so far, a person in our team other than in the future we would have a negotiation or similar, that we will cover that person with technology,’ says Álvarez Fernández, head of legal, Europe at Cintra.
‘I think this is going to help us to better allocate the resources that we have. I don’t think this will limit the human resource.’
And nor should it, says Atkinson:
‘You wouldn’t want to automate absolutely everything. One of the key aims with my work has been: let’s automate what we can, let’s try and improve consistency and efficiency,’ she says.
‘That ultimately helps the client and it frees up the people to do more of that people-facing work with their clients. People still want to speak to a human being on a variety of options and we still absolutely do need those checks from the humans on what the machines are producing.’
Whatever the future holds, the consensus for now seems to be that any true disruption remains firmly on the horizon – and although the potential is undeniably exciting, to claim that the robots are coming would be… artificial.
When it comes to the implementation of technology for in-house legal departments, getting buy-in from the rest of the business proved to be one of the most influential factors in the likelihood that a team was to have implemented technological solutions within their department.
71% of the in-house counsel surveyed for this report said that they felt their company was supportive of implementing new technology solutions. The remaining 29% did not.
This support manifested in the amount of budget allocated to in-house departments for technology spend: just 27% of counsel from non-supportive companies had been given an increased budget to spend on new technology, while 67% of those from supportive companies had seen an increase.
‘Money is nice, but implementing a new bit of technology will require the cooperation of the whole business – from the board down to the IT department. So money is something, but it’s not the only thing,’ explains one general counsel from the utilities sector.
Is your company supportive of implementing new technology solutions?
Those who did feel that their businesses supported them were empowered to actually implement legal technology into their departments: 95% reported that they had used specialised legal technology within their department, compared to just 58% of those who did not receive the same support. They also tended to be from larger teams, with over half being responsible for teams numbering ten or more.
Despite being a predictor for the level of technology use within departments, comparing those who felt their organisation was supportive of the implementation of new technology with those who did not unveiled some interesting insights.
Those who were well supported in the implementation of legal technology (and therefore more likely to have actually done so) were, on the whole, less cynical about technology: just 34% felt that it would greatly disrupt the legal profession in the next five years. At the same time, 39% thought that today’s lawyers were adequately equipped to deal with technological disruption within their profession.
Compare this to those who were not well supported, where 42% were as positive on the question of current lawyers’ preparedness. Just 27% felt that technology would greatly disrupt the legal profession in the next five years.
6% of those who said they did feel that their organisation was supportive of implementing new technology said that they felt that technological disruption would be a negative for the legal industry, compared to 4% of those who did not feel supported.
The amenability of teams to the use of new technology was also significantly different between the groups: 73% of those in non-supportive organisations said that their team members were receptive to the use of new technology, as opposed to 94% in supportive organisations.
This may have as much to do with the composition of those groups as anything. Counsel whose businesses did not feel supported tended to be from larger companies in more traditional sectors. 80% of those that felt their businesses did not support them belonged to businesses with annual revenues of at least £1bn, and 31% were responsible for a team of more than 10 lawyers. Over half were from companies involved in financial services – the likes of banking, insurance and audit.
‘With a smaller team, you tend to be more agile in your budget choices,’ says one general counsel in the fintech sector. ‘Also, with a smaller headcount, the actual investment you’re asking for from the business is likely to be much less than if a multinational bank was to look to adopt a global legal tech solution.’
Of those who reported their company as being supportive of implementing new technology solutions, just 39% felt that today’s lawyers were properly equipped to deal with technological change, 92% felt that AI would be a disruptor to the legal industry and 94% felt that their team members were receptive to new technology. For those who felt their company was not supportive of implementing new technology solutions, the numbers were 42%, 88% and 73% respectively.
Unease with the anticipated digital and disaggregated future is real in many dusty corners of the legal profession, and with around 1,400 legal tech companies fighting for a share of the global legal services market, the prevailing story has been the threat these offerings pose to traditional law firm models. However, this narrative hides a subtler shift in how some law firms are approaching this impending disruption: they are working with the innovators, not against them.
Getting into bed with the enemy
In the past two years, law firms have started to create technology incubator programmes within their own walls. Much like the ecosystem of incubators and accelerators famous in Silicon Valley and tech hubs around the world, the idea is to take a business concept in the early stages of development and provide any combination of support, mentorship, facilities and even investment.
This shift might seem counterintuitive to some: why would the old hands team up with the young upstarts whose end goal, in many cases, is to capture the law firm’s own clientele of general counsel who are under continued pressure from the board to minimise their contribution to the $600bn dollar global industry that is big law?
For some firms, engagement with start-ups is the result of a process of introspection, one that began in an attempt to root out the pain points of its lawyers’ working lives.
This growing cohort of law firms is convinced that that there is much to be gained from a willingness to demonstrate a pragmatic grasp of today’s legal marketplace.
Typically, the rewards for the law firm are financial: should they hit on a unicorn, the monetary returns can be huge, as well as the reputational boost given by being associated with a true disruptor in the legal market.
But while the money and fame are both good, oftentimes, the best rewards are less tangible.
‘It’s true; it’s difficult to show to the business real and tangible KPIs. They are more intangible ones,’ says Francesc Muñoz, chief information officer at Cuatrecasas, one of the many law firms around the world who have entered this space. Cuatrecasas is a Spanish firm that has teamed up with innovation platform Telefónica Open Future to create Cuatrecasas Acelera, an accelerator now on its third call after launching three years ago. Cuatrecasas Acelera supports companies at the pre-series A1 phase with mentorship in marketing, finance and business models, as well as 20 hours of free legal advice from 40 participating Cuatrecasas lawyers.
For Cuatrecasas, working with a multinational blue chip like Telefónica has amplified the reach and impact of its Acelera programme. But Telefónica itself also reports the benefits of collaboration in extending influence in the innovation space.
‘On one hand, our network of partners extends our reach and provides us with shop windows to new industries and ecosystems. This allows us to learn from them and eventually enter new markets, hand in hand with market leaders. On the other hand, our partners help us improve our value proposition to entrepreneurs by putting more resources, investment and business development opportunities on the table,’ explains Agustín Moro, global head of partnerships at Telefónica Open Innovation.
‘But some of the start-ups that we are helping become small clients and we hope that they become, in the future, big clients. So you are putting some seeds into the business sector to see if start-ups grow in the future,’ Muñoz adds.
Edmond Boulle, co-founder, Orbital Witness
‘The team comes from the space industry and, when we set up, we were looking at how we could use satellite imagery to solve problems in real estate transactions and litigation. But the real pain points were around other datasets – so accessing all of the information that is required for searches, making that information easier to digest, easier to report back and then communicate to clients. Our system is learning what features to look for from the data, which trains our system to recognise the types of, for example, restrictive covenants, easements, restrictions on the Land Register, and other data sets outside of Land Registry data, that may be indicative of a particular risk in a given type of property transaction. We were one of the first start-ups chosen for the joint PropTech accelerator programme, Geovation, run by HM Land Registry and Ordnance Survey, which means we have their help to innovate with their data.
We came to MDR LAB with very much a fledgling concept, being the earliest stage company they had taken on in the first cohort. The lab was helpful in a number of ways: in terms of access to great advisers, in understanding the wider real estate industry – not just the legal side. By far and away the most important thing was being able to sit down with over 40 of their real estate lawyers, day-in day-out, and just go through how they work in an almost forensic way. This allowed us to identify which bits don’t add value to their practice and were time consuming and repetitive, which we could then meaningfully make an inroad into, in terms of helping them with speeding up or automating.
A good solution is one which works at both ends, so they made introductions to their clients – in fact we’re piloting with a few of them as well. It will be between the law firm and the client to decide how best to allocate the use of our platform, so maybe the client can do some of the work in-house, and then the law firms can maybe do the deeper dive on the due diligence themselves a little later on, and still get the benefit of using us to work more quickly and more effectively.
Lawyers are still typically very risk averse – even among the firms who are pushing innovation, fundamentally, some individual lawyers are more risk averse. I think there’s a sense in which you can be welcomed in initially, and then it can soon feel that you’re having to battle more traditional attitudes. But then, I don’t even put that on the law firms. They are responding to the risk that their clients are willing to take. So if their clients express a desire to take a little bit more risk, the reward from it will be a faster and lower cost service. Quite often, they want to reduce fees as well, but they still want that quality service.
Very recently, at an insurtech conference, someone made a really nice point that when lawyers talk about innovation, they often use the image of a robot. And when they talk about machines replacing lawyers and a) how concerned they are by that, or b) how ridiculous they think that is, they also use the image of a robot. So even in the industry, they’re not quite sure what to make of this.
We’re starting to make some great headway; we’re working with a number of early adopter law firms who are highly respected in the field, and a leading title insurance company and we are going to continue along that path, at least until the end of the year. There’s a point at which you can’t call the next client an early adopter any more!
We’re working very closely with our first customers because their feedback really helps accelerate product development. And Mishcon de Reya was our first customer. We’re also piloting and testing our products with small teams and GCs at the clients of the law firms that we work with. The issues around that are quite interesting because if you’re working with a big law firm with upwards of 50 lawyers, you have one pricing model, which has to scale appropriately and allow for disbursable cost elements. But then you come to an in-house team with three or five people, so you have to think, “How do I make my pricing model work for them?” It’s a different game. How do you go from being a product that’s serving large departments, to serving a client with a smaller number of lawyers in-house if, for example, you are offering a subscription service?’
Those seeds could include investment, although that is not the point, says Muñoz. At Cuatrecasas Acelera, the firm doesn’t take a stake in the businesses that pass through the programme. But the agreement includes an option that, at the next investment round, Cuatrecasas could invest under the same conditions as the lead investor, up to a percentage.
‘It’s really quite a minor percentage of the start-up. It’s completely an option, but other acceleration programmes take a stake in advance of 2%, 3% or 5%,’ says Muñoz.
Culture change
But there is a broader cultural benefit to be enjoyed much sooner, according to Muñoz. ‘You are putting the most innovative people that you can find in your sector in contact with your lawyers, with your teams. It creates a really beautiful circle and a lot of passion within the people that are interacting with them and giving advice,’ he explains.
The head of another law firm-founded incubator agrees: ‘I’ve seen how the legal sector is quite traditional, but also how the firm’s people – the partners, the associates – have actually become a lot more innovative in their thinking just by spending time working on a day-to-day basis with those start-ups based in their building. And actually, with the companies from last year, the majority have continued to work with the firm and have integrated inside, so the firm is now using these new technologies, making them a whole lot better, and they’ve changed their own mindsets, too.’
However, opening up to innovation often means letting go of a mindset focused on success, ingrained by the often adversarial nature of both litigation and corporate law. The reality of start-up life is the ever-present whiff of failure, and that is something that law firm lawyers, accustomed to being the experts, must adjust to. For many, that’s a case of learning how to ‘fail better’ and move on. Being the expert in one vertical might simply not be enough in today’s marketplace, where openness to innovation might be less of a soft skill and more of a business imperative.
‘As a former lawyer for stock markets, I always keep an eye on the new trends in the legal tech niche. The transformation speed in this traditional vertical is so fast that I could not think of a law firm that aspires to be market leader without working with start-ups and using their technologies. All the leading firms that I am aware of have programmes or initiatives to capture and benefit from innovation,’ says Moro.
Making a mark
In a profession often noted for its resistance to change, there can be kudos for those bold enough to be a first mover. According to Edmond Boulle, co-founder of Orbital Witness, a start-up real estate intelligence platform that employs satellite imagery and property data analysis to flag legal risk in real estate transactions, there is a clear advantage for those who get in on the ground at an early stage in technological development.
‘They have a meaningful say in product development. We are listening to that and we are designing our products around the things that they are telling us are painful. They are seeing iterations of the product and feeding back on that, so if you’re an early adopter, you’re bespoking it a little bit to your style of working. As soon as you’ve got a critical mass of customers, it ceases to scale from the start-up’s perspective to adapt your product to individual needs and preferences, and from the customer’s perspective, it’s more of a fixed offering,’ he says.
But, perhaps the bottom line speaks loudest. A spokesperson at one law firm accelerator claims that a growing willingness to embrace technology has meant that not only is there no better time to be a lawyer – but that the efficiency savings of legal tech could even grow market share.
‘Let’s be fair, some parts of a lawyer’s job are not very fun. You don’t want to stay up reading the same lease a thousand times, you don’t want to chase signatures at midnight or hang out at the printer. You want to do the legal work and so the technology enables that by taking away a lot of the drudgery. The smart lawyers understand that they can pull that off, they can get more work, win more competitive panels, they’ll grow their share of clients and have a more fulfilling legal practice.’
A helping hand from Goliath
For the legal tech start-ups themselves, the benefits are much more tangible. For Orbital Witness, coming into the MDR LAB, run by UK law firm Mishcon de Reya, was an opportunity to adapt a fledgling space tech concept – it was the earliest stage company the lab had taken on in its first cohort – into a viable legal tech one, by gaining an inside view of the workings of a law firm.
‘The genesis of the Orbital Witness platform, frankly, was seeing lawyers’ desks covered in papers – from the local authorities, from specialist search providers, from the Land Registry – and every time they were trying to find a piece of information talking about a property, instead of being able to jump to what they wanted, they were either searching through document management systems on their computer or rooting through the desk strewn with papers. It just struck me as very laborious,’ recalls Boulle.
But on top of the opportunity to forensically analyse the working methods of 40 lawyers in the firm, Orbital Witness was able to learn about the real estate industry beyond the legal side and, crucially, meet some clients.
‘We’re piloting with a few of them now. And we’re actually going a little bit further than that as well: we’re building collaborative tools. We saw that a lot of time goes into emails and phone calls between a lawyer and a client. Now, obviously, that’s part of the personal relationship with the lawyer and client, and that’s not going anywhere. But if you’ve got five emails back and forth trying to describe what part of the land the lawyer is talking about, that’s just inefficiency. So by bringing both the lawyer and the client onto a collaborative workspace on the platform, you can cut out a lot of that needless, repetitive back and forth,’ explains Boulle.
For some firms, engagement with start-ups is the result of a process of introspection.
Other benefits for start-ups that join such innovation spaces might include the opportunity to adapt an existing product to a new legal and regulatory environment, or to get that first customer. Those in the latter position face a slow, and sometimes demoralising sales cycle into big law of 18-24 months.
‘We started as a DMS (document management software) six years ago with a focus on law firms. After some years, we realised that law firms are slow to decide and that they don’t have the big budgets large corporations have for growing their organisations. Therefore, we changed our strategy and began offering our product and service to large corporations,’ explains José Manuel Jiménez, CEO of Webdox, a Chilean start-up and beneficiary of Telefónica’s Wayra Chile programme.
Beneficiaries of law firm accelerators benefit from compressing that cycle by piloting their technology to an audience with an intellectual, if not financial (yet) stake.
If a law firm doesn’t ultimately take the bait, the legal tech model, often comprised of Software as a Service companies charging per user even while their founders sleep (as opposed to billing hours), seems to be increasingly appealing for institutional investors – which bring professional management expectations and software company economics into the legal tech ecosystem.
Don’t fear the new legal ecosystem
The result of all this is a new ecosystem within the legal community. Firms are no longer at odds with legal innovators, and lawyers shouldn’t let a fear of ushering in their replacements stop them from securing benefits of their own out of this new norm.
But is any residual fear within the legal services industry justified? At Cuatrecasas, Muñoz thinks not: ‘We don’t see lawyers disappearing from here; we see keeping probably the same amount of lawyers – doing different things, sure, and in a different way, sure – with more support of technology, probably working much more with engineers in order to set up a full legal service, not only legal advice.’
Boulle agrees that the sector will change, but not necessarily to the detriment of lawyers. ‘Certainly the product that we have now is just about starting to make their lives easier and better, and it works in symbiosis with them – we can’t work without lawyers,’ he says.
‘I think there is room in certain parts of the industry to remove particular tasks from lawyers altogether. I don’t think of ours as a “putting lawyers out of a job” tool, it’s just simply saying there are some things where, if the volume and cost of the work means it’s not feasible to have a professionally qualified individual doing a detailed analysis, it makes more sense to balance the risk and the cost and have a machine to assist in the process.’
The realist of start-up life is the ever-present whiff of failure.
In-house legal departments, driving this market with their continued disaggregation of external support, also stand to benefit from a diversified job market for their own skills, as the legal tech sector expands, offering hybrid legal-entrepreneurial roles.
Of course, this is likely to be some way off. Legal tech companies with true brand recognition remain few and far between, with much of the investment cultivating companies applying state-of-the-art technology to commonplace tasks like contract review – hardly the stuff of dreams. And as companies progress beyond the start-up stage, growth will be a challenge, as multiple small operations compete for the bandwidth of law firms.
If the law firms incubating and accelerating legal tech are to believed, private practice has more to gain than lose from embracing technology. An easier life, greater professional satisfaction, and an enlarged – and happier – circle of clients who remain loyal because they share in the efficiency dividend all beckon for those with open minds.
But for those who think that is too good to be true, perhaps becoming a stakeholder in the digital future is at least a way to avoid ending up at its sharp end – sharing the gains of technology rather than counting among its casualties.
It’s no secret that general counsel are being asked to do more with less – in fact, that’s likely true for almost all facets of business in the current climate. But rather than piling up hours at desks to make ends meet, the results of our survey suggest that an increasing number of in-house teams are turning to technology in order to improve efficiency within their departments.
80% of the in-house counsel surveyed reported that the use of technology within their departments had increased over the past five years, with 21% describing that increase as significant. But that number didn’t align with an increase in budget for technology, with only 56% reporting an increase in budget over the past five years – a figure which the underlying numbers reveal to be significant.
Of the 44% of respondents who did not receive an increase in budget, only 4% reported a significant increase in the use of technology within their departments, with 30% reporting no change or a decline in use. That figure stands in contrast to those who did receive an increase in budget, where 86% of departments reported a subsequent rise in technology use – suggesting that those teams who did receive an increase in budget were not only spending it, but ensuring that it was being deployed across their departments.
For those with stagnant budgets but a desire to utilise new technological solutions, looking internally instead of externally was a common solution – although the numbers suggest that it’s not having the impact seen by those with deeper pockets.
‘Because we’re at heart a technology company, we’ve been able to mobilise our internal resources to help our department become more modern. Our IT department have been proactive in working with us to implement new systems, while members of the legal team have sought solutions which emulate what other departments are doing, only without the associated cost,’ reported one general counsel from the IT sector.
That sentiment wasn’t uncommon – particularly from general counsel heading smaller departments. For legal teams of ten people or less, only 47% reported seeing an increase in their budget for technology.
‘There is still the need for smaller teams to provide increased efficiencies, but the budget doesn’t allow for it. It’s then left to us to find ways to use technology to provide efficiency, but essentially for free. That’s not to say it can’t be done, it’s just more difficult,’ said one general counsel from the consumer goods sector.
Have you received an increase in budget for technology over the past five years?
Teams with smaller headcounts had the worst rate of uptake of technology, with 42% of departments with less than ten people saying that they didn’t use any legal technology at all (compared to 7% of departments with more than ten people). Despite that, all of the general counsel from smaller departments who were yet to implement specialist legal technology said that they believed it can enhance outcomes for in-house legal departments.
One general counsel from the food and beverage sector said that while they saw the potential for technology to have a positive impact on in-house legal departments, for smaller teams, the type of work it could currently assist with meant that it would not provide a meaningful return on investment.
‘Technology will improve efficiency on a long-term basis, however, this will most apply for standardised processes or transactions. Larger teams will see higher benefits. At present, I do not yet see a great benefit for small teams dealing with non-standard issues,’ they said.
While reporting a moderate increase in the use of technology within his own legal department, Konstantin Pogrebezhskij, deputy head of legal for Kronospan GmBH, says that a small headcount – not necessarily budget – can make implementing meaningful technology solutions a challenge.
‘The main disruption for us, generally, is the time required to customise the technology solutions and fill the data into it. At some point, you feel that you waste the time saved by the technology just to keep it running,’ he says.
For teams with a larger headcount, particularly those with more than 50 people, technology was seen as a higher prerogative. 100% of respondents in legal teams numbering between 50 and 100 employees said that they had both received an increased budget and had actually increased their technology use in the past five years.
Those with very large legal teams – those with a headcount of more than 100 employees – fared slightly worse than those with a headcount of between 50 and 100, with 61% reporting an increased budget and 72% saying their use of technology had increased.
One general counsel from the banking sector attributed a lower increase in budget and technology for the very largest teams to an unwillingness of these general counsel to upset the status quo.
‘Technology forces in-house teams to identify low-level repetitive work and to find solutions for it which do not involve large amounts of legal manpower,’ they said.
‘That remains a challenge and perceived threat for a certain cohort of in-house lawyers, but an opportunity for those genuinely keen to focus on more strategic work.’
The proliferation of blockchain technology has forced nearly every sector to re-examine traditional ways of doing business. Nowhere is the potential more apparent, or the sector more traditional, than in the negotiation, creation and execution of contracts. If the blockchain evangelists are to be believed, the manner in which parties’ contract will be changing drastically in the not-too-distant future. But while a number of high-profile success stories illustrate the transformation potential of the technology, it’s clear that there is still a way to go.
Blockchain understood
To understand blockchain technology and the potential value that it brings to business, think of how an ordinary business transaction works: there is an agreement and exchange of goods or services between parties. Each party keeps their own ledger, which records the transaction. But because the ledgers are held independently, there is scope for discrepancy between them – be it through error, disagreement or fraud. Traditionally, this was mitigated by introducing a third party to the transaction – usually a bank. But reliance on a third party introduces cost and inefficiencies that need not be there if there was a way to create and maintain a singular, shared ledger – one that is equal parts transparent and secure.
Enter blockchain
A blockchain is a series of mathematical structures, inside which individual transactions are recorded. The record of each transaction – each ‘block’ – is mathematically contingent on the block that came before it. The transaction becomes a permanent part of the history of the blockchain and, in that way, it cannot be tampered with: once it is added to the blockchain, all subsequent transactions are recorded in relation to that block and all of the blocks that came before it. Following each transaction, the updated blockchain is distributed to each participant. In this way, blockchain becomes a decentralised ledger that is impossible to tamper with effectively: any attempt to change a record in the blockchain will put it at odds with the version held by every other participant in the blockchain, as well as all of the subsequent transactions that have been recorded.
Put simply, blockchain technology allows for a distributed, decentralised and secure ledger that eliminates the need for third parties, while providing a level of validity to participants that would otherwise have been impossible. It is this technology that has made cryptocurrency like Bitcoin a viable endeavour. But the applications of blockchain are far more varied.
Smart contracts
Smart contracts are one such innovation made possible by blockchain technology – though as a concept, smart contracts have existed since the early 90s. The idea is that instead of a paper contract – one that amounts to the words on a page and the interpretation that third parties give them – one could record a contract in the form of computer code. The code not only provides for the terms of the agreement, but the execution of it as well. When the obligations of one party are satisfied, the platform behind the contract will automatically release the benefit owed by the other party.
The key to smart contracts is decentralisation – there are no banks or other third parties involved in the execution of the agreement. The idea is to allow the creation and execution of a contract between two people to be as simple and direct as possible.
The obvious question follows: where is the smart contract actually stored and how can it be possibly be trusted?
Blockchain technology is the solution. The decentralised, theoretically uncompromisable central ledger makes for a perfect arbiter for the integrity of these agreements. Once coded, the smart contract is added to the blockchain ledger, with its integrity provided for in the same way as anything else on the blockchain. If the transaction calls for it, the money at stake can be paid by each party into the smart contract using cryptocurrency, at which point the contract will hold the money in escrow until the necessary conditions are satisfied.
In theory, removing the element of trust between parties to a contract should make for more reliability.
‘What we have realised is that smart contracts are rapidly becoming an alternative way to transact, with more than $10bn raised through smart contracts in the last 18 months,’ says Olga V. Mack, vice president of strategy at Quantstamp, a company working to build security infrastructure for blockchain-based smart contracts.
‘What we have also noticed is the rapid proliferation of this technology. The widely cited figure is that, globally, there were more than 500,000 smart contracts that existed one year ago. That number has grown to about five million that exist today. The use of smart contracts has been growing exponentially and is showing no sign of slowing down.’
Smart and secure
The trepidation surrounding blockchain and smart contracts is by no means limited to those that don’t understand it. Plenty of ardent advocates for the widespread adoption of this technology acknowledge that, like most innovations, users should exercise caution against overreliance.
The execution of the agreement is where the real value of smart contracts is realised, but the process of negotiating, agreeing and coding the contracts themselves necessarily requires a human element. As such, it is subject to the same kinds of vulnerabilities as virtually anything else. There have been a number of high-profile breaches and hacks brought about by improperly coded smart contracts that have resulted in the losses of millions of dollars. Because the process is decentralised, and the money is wrapped up in the contract itself, the normal process of testing, reporting on and fixing erroneous lines of code will not suffice. Smart contracts need to be airtight from day one.
The DAO is a smart contract protocol. By June 2016, over $250m worth of cryptocurrency had been invested in the DAO by nearly 20,000 individuals. On 17 June, a vulnerability in the core code of the protocol was exploited and used to drain over $50m in virtual currency.
blockchain technology allows for a distributed, decentralised and secure ledger.
Vulnerabilities in code are nothing new – even the most diligent traditional financial institutions commissioning software intended to govern staggering numbers of monetary transactions will not expect their code to be free of bugs or vulnerabilities. The potential for catastrophe should these vulnerabilities be exploited is limited: as soon as they are identified, they can be corrected and updated. But because smart contracts rely on the ever-present and immutable blockchain ledger, once a smart contract is let loose into the world, changing it becomes difficult, if not impossible.
This question has led to a burgeoning economy of auditors whose speciality is to review smart contract protocols in order to expose vulnerabilities. This isn’t perfect for the same reasons that any piece of code isn’t completely unexploitable, but the extra step of third-party verification may go a long way in making sure that would-be investors or end-users are confident.
Taking Blockchain In-House
Before taking on her new role as vice president of strategy at Quantstamp, Mack spent nearly a decade working as an in-house counsel, putting her in the unique position of being able to consider the impact of blockchain technology for corporate legal departments.
‘I think at a high level, the opportunity is not all that dissimilar from electronic signatures. I think it will free GCs to be more creative and more impactful on the business side. Smart contracts will be another tool at the disposal of the modern GC, but we’re probably not quite there yet – the infrastructure and platforms are being built as we speak,’ she says.
‘Once we figure out the platform protocol and infrastructure challenges, I would expect at that point the proliferation of applications to take place. It’s good for lawyers to get into this now, both to understand and frankly to help build it – so they are part of building applications as opposed to suffering the results of misinformed others building it.’
‘It’s certainly a revolution. But so far the most impressive applications I have seen are outside the legal world,’ adds Vincent Martinaud, counsel and legal manager at IBM. ‘The most advanced are in trade finance (we.trade consortium), global logistics (the cooperation with Maersk) and in the food ecosystem (Carrefour being the last eminent player joining Walmart, Nestlé and Unilever amongst others), and all these initiatives are underpinned by blockchain technology.’
The Maersk example that Martinaud refers to is TradeLens, the blockchain platform born out of a partnership between global shipping company Maersk and IBM. The aim is to bring the global supply chain into the future by using blockchain and smart contracts to enable smarter collaboration between importers, exporters, customs agencies and other governmental bodies to make international shipping a smoother process without compromising on auditability and security.
‘In the legal field, I don’t think there is anything comparable yet. I’m not saying smart contracts aren’t used or going to be used, but at this moment in time the technology is not as pervasive as in other, more mature sectors.’
It is not hard to imagine the potential uses of blockchain within the legal sphere: anything which relies on record-keeping between multiple parties could find value in the technology. Land registries, particularly in developing countries where record-keeping is beleaguered by inaccuracy and corruption, could be revolutionised, as could intellectual property registers around the world.
That blockchain technology hasn’t become a staple of the in-house toolkit makes sense: the broader business world is still working to realise its potential. It’s also a highly technical and often misunderstood area: while lawyers are used to quickly digesting and using foreign pieces of information, this is a different beast entirely.
As these innovations become increasingly common within business, lawyers will not only have to begin thinking about how they can be leveraged for use on their own in-house teams, but how they can put themselves in a position to give legal advice in a post-blockchain world.
This may not be a perfect fit for a profession that has long been accused of technological aversion.
Blockchain is a field where the two worlds of software development and legal expertise meet. As the applications of blockchain and smart contracts move towards the legal realm, the pressure is on for lawyers to grow their understanding of a field typically left to the CIO.
Gloria Sánchez Soriano, group vice president and head of transformation, legal at Santander, has considered how disruption of this kind might impact the kinds of lawyers that can thrive in in-house teams.
‘Lawyers, and the people we will be hiring in the future must be able to provide legal advice to innovative projects. If you don’t understand blockchain, it will be very difficult for you to provide advice on this. And we are also considering all this in our training programmes at the Santander Legal Academy,’ she says.
Blockchain is a field where the two worlds of software development and legal expertise meet.
‘Santander has a department which is in charge of the legal advice of our innovation areas, but there are also many other areas – for example, corporate investment banking – which have just done a blockchain project with a very technological base, so the lawyers who were traditionally advising these businesses now need to be able to advise about technological issues.’
There is an appreciation among lawyers interviewed and surveyed for this report that while this technology will be important going forward, lawyers are currently not equipped to deal with the change. Just 14% of those surveyed felt that current lawyers were adequately equipped to deal with technological changes within their profession. 61% felt that they were not.
Ready or not, change is coming, but these changes don’t spell doom for the legal profession: they simply mean that there will need to be an adaptation.
‘I do think that it will transform the expectation of competency for lawyers. In doing so, I also ultimately think it will make our jobs more exciting so that we don’t have to do all those administrative things that can be minimised and we can really drive volume- and quality- generating for our businesses,’ says Mack.
‘I think the next 10-20 years will be an exciting time to practice law. We will have an impact, we will be true partners to other business units. There is an increasing trend for legal to be a partner, to be volume and quality generating and to measure all of that. I think this is a technology that will help us to get there sooner and will help legal to become embedded and solidify the support of any business.’
Trepidation and regulation
While businesses marvel at the potential of blockchain, governments around the world are fighting their own battles with the technology. With the potential of blockchain to have a major impact on many highly regulated areas of business, it is inevitable that a regulatory response is coming.
The philosophy at the foundation of blockchain already sits uneasily alongside current regulatory and governmental structures: for instance, the EU’s General Data Protection Regulation (GDPR) dictates that individuals be able to request for their personal information to be deleted by those that hold it, yet the biggest draw of blockchain is the permanence of its record.
The anonymity that blockchain provides for cryptocurrencies also lends itself to use in more illegitimate endeavours. Tax evasion is a concern. Because cryptocurrency transactions are not easily attributable to individuals (if at all, depending on the currency being used) it makes it difficult for tax authorities to detect the lost tax revenue and punish those involved.
Then there’s the hard kind of criminality – money laundering, terrorist financing and drug dealing. For these, the EU has already taken steps to include cryptocurrency in the existing regulatory framework. The latest iteration of the EU’s Anti-Money Laundering Directive (AMLD5) brought cryptocurrency exchanges and certain e-wallet providers within the scope of the regulation. It would put these entities in the same position as traditional firms when it comes to their obligations to implement preventative measures and report suspicious activity relating to money laundering. The new directive entered into force in July 2018, meaning that EU member states will be required to comply by 10 January 2020.
The AMLD5 is not comprehensive, and certain corners of the cryptocurrency world are not covered, including certain wallet providers and independent trading platforms. Also, being an EU creation, it is only applicable to EU member states. As adoption of this technology grows, the need for global collaboration will increase, given its borderless nature.
Other jurisdictions have taken a more suspicious view of the technology. China banned cryptocurrency entirely in 2017. In the same year, South Korea banned initial coin offerings and interested parties are now eagerly waiting to see how the government proceeds from here. Japan was one of the first countries to recognise Bitcoin as a currency, though regulators have been silent on other blockchain-backed innovations.
The tension at the heart of proposed cryptocurrency regulation is an old one. With convenience and efficiency at the core of the blockchain and smart contract value proposition, the inevitable attempt by world tax authorities to take their cut of these transactions may hinder the core draw of the technology. On the other side of the coin, is there really any need for complete anonymity when it comes to financial transactions? This tension will inevitably shape the approaches to regulation of blockchain technology and, ultimately, play a major role in uptake – both for in-house purposes and beyond.
The pressure on general counsel to innovate could be having a trickle-down effect on the external legal advisers they instruct.
The overwhelming majority – 91% – of in-house counsel surveyed for this report felt that it was important that their external advisers kept abreast of new technologies.
‘It is absolutely essential,’ says Gábor Kukovecz, head of legal and operations at Diageo. ‘The baseline is that we must be able to communicate very effectively with our external law firms. This requires that they use state-of-the-art communication and cloud-based collaboration software. In the near future, we will implement a collaboration software in which we work together with our external law firms that they must also fully implement.’
How important is it that your external law firms keep abreast of new technologies?
Despite there being a common recognition that it is an important factor, nearly as many in-house counsel reported that they didn’t know if their external providers were implementing technology to deliver their legal solutions (36%) as those that answered that they were (40%). Just 37% felt satisfied with the use of technology by external firms; 25% were not satisfied, and 38% were unsure.
As the conversation around alternative fee structures and the traditional firm-client relationship continues, many in-house counsel made the point that there is no reason that their efforts to reduce costs and increase efficiency via technology shouldn’t be replicated by their external counterparts. After all, in a number of ways, the GC is to the law firm as the business is to the GC – which is to say, the GC is the client and it should be incumbent on the firm to provide the best value for money.
‘Clients are no longer willing to pay for high numbers of billable hours when they are aware that many tasks can be done faster and cheaper,’ opined Tobiasz Adam Kowalczyk, head of legal at Volkswagen Poznan.
Are you satisfied with the use of technology by your external law firms?
‘Paralegals and associates who once devoted hours for document review can be now easily replaced by e-discovery processes. In a constant pursuit for efficiency and optimisation, clients expect more for less, which has made the legal market even more competitive. Fresh players have entered the market, providing clients with automated and cost-cutting solutions. I see automation as the way forward, making projects smarter and more efficient. Legal automation won’t be un-invented, and – eagerly or not – more and more firms will need to adopt it out of necessity.’
There are also rewards to be reaped in terms of collaboration. The initiatives taken by external firms can serve as a useful model for in-house teams trying to create efficiencies of their own.
‘External firms must have technological systems updated in order to provide us with the most modern solution and to share it with our internal legal team,’ said Ana Soriano, head legal counsel at Inveravante.
Not everyone is as bullish on technology, however. To some, the use of technology is mostly smoke compared to other, softer competencies.
‘The improvement I actually want from law firms is not based in technology,’ said Ruth Pearson, general counsel of LendInvest. ‘I’d be far more inclined to instruct a firm that could demonstrate an investment in understanding their clients – for example, by hiring non-lawyers to improve their commercial acumen and understanding of what drives their clients, moving away from billable hours to a client-focused incentive structure, understanding risk appetite and being able to advise within those parameters, than a firm that thinks it can demonstrate technological innovation.’
‘I prefer a good lawyer not using tech to a bad lawyer using tech,’ stated the general counsel of one large French manufacturing company.
When asked if the question of technology arises when undertaking a panel review of external advisers, just 35% said that it was a factor, while the majority (41%) said it wasn’t a factor at all. With panels becoming narrower and more deliberate all the time, the points on which firms differentiate themselves will take on an increasing importance. Given GC’s evident interest in the use of technology by external firms, this factor may grow in significance in the near future.
‘Depending on the jurisdiction and the business activity being undertaken, it is of moderate importance,’ said the group counsel of one global engineering company. ‘However, in the selection of lead counsel for C-suite-led matters, it has moved to the forefront of selection criteria.’