Roaring 20s for the Legal Industry

The decade that followed the Spanish Flu pandemic is known as the “Roaring 20s,” which is a period marked by a robust economy and cultural transformation. Of course, we all know how it ended...but let’s not get ahead of ourselves.

There are many obvious parallels between the start of this decade and the one that preceded it by 100 years: a (hopefully) waning pandemic and the strong stock market, foremost among them.

The 1920s was the era of the growth of “white shoe” law firms, mainly based in New York, Boston, and Philadelphia, which catered to major corporations. Today, many of the firms that rose to prominence a century ago are now global powerhouses. Some things haven’t changed, but so much else about the legal industry has radically transformed.

Even before this pandemic, the winds of change were blowing mightily. COVID-19 has been a gale force accelerating existing trends, such as the need for technological innovation and reinvention of business models.

With crisis comes opportunity. The groundwork has been laid for participants in the legal industry to thrive this decade.

Are we heading toward a new Roaring 20s?

Future-Back Thinking

To understand the opportunities in front of us, it’s necessary to look way out into the future through a process called “future-back” thinking (a concept coined by management consultancy Innosight).

Most planning and projecting is rooted in the present. We make decisions based on existing business models, market circumstances and service offerings.

This is “present-forward” thinking.

Future-back thinking requires a different approach. It involves wiping the slate clean and looking out into the future to consider the possibilities.

What are the long term trends? The threats? The opportunities?

It requires strategic and imaginative thinking.

The Changes Giving Rise to Opportunity

Forward-thinking participants in the legal industry, including law firms and alternative legal service providers (“ALSPs”), hoping to thrive in the next decade have plenty of disruptive trends to exploit.

1. Cracks in the Regulatory Environment

Common law jurisdictions such as England and Australia have already taken measures to lift the prohibition on non-lawyer ownership of law firms. A few jurisdictions in the United States have taken steps to loosen law-firm ownership regulations, and more are considering changes of their own. Most notably, Arizona became the first state to completely eliminate the ban on non-lawyers having an economic interest in law firms.

The impact of such changes will be significant, opening the door for new business models, service delivery models, funding sources, and innovations. Successful law firms of tomorrow will likely look and operate far differently than they do today.

2. Shifts in Demand Leading to Shifts in Skill Sets

Traditionally, the training and development of lawyers have focused on teaching fundamental legal and business skills. Because of the changing nature of legal demand, the next decade will require legal service providers to develop more hard technology and science capabilities, such as data analysis and artificial intelligence.

Lawyers will need to be conversant in and comfortable with these issues, but the delivery of legal services in these areas will likely be done by non-lawyer, highly skilled specialists. Changes in law firm ownership rules will allow firms to recruit talent in these areas and offer profit sharing, allowing previously fixed costs to adapt to market performance.

3. Flexibility in Fixed Real Estate Costs

The “grand experiment” in remote work has demonstrated to corporate law department leaders that workers don’t need to be physically gathered under a single roof to perform effectively. At the beginning of the pandemic, it was widely assumed that once stay-at-home orders were eased, workers would return to corporate offices. Evidence that distributed workforces are fully capable of getting the job done is leading businesses to fundamentally rethink the notion of a corporate office. Why invest the time and resources to reconfigure office spaces and increase the risk of exposure when productivity isn’t being impacted?

One of the primary benefits being realized by those who are more fully embracing a distributed workforce is that they have a much broader and deeper pool of talent to draw upon. When the quality of work—not the location of where work is done—becomes the number one priority, corporate legal departments exponentially increase their ability to find the right person for the job.

In response to this trend, legal service providers will look for opportunities to reduce fixed real estate costs and reinvest those savings into new drivers of growth, including transformative business models, technology, and talent.

Ready to Roar?

One of the obvious conclusions to draw from these trends is that the line will continue to blur between law firms and ALSPs. In fact, the “A” may be dropped altogether in the next decade, and everyone in the industry may be referred to as simply “legal service providers.”

The steady increase in demand for ALSPs suggests this trend has already firmly taken root. According to the 2020 Legal Department COVID-19 Survey, utilization of ALSPs is expected to increase 54% this year among clients who used ALSPs pre-COVID, and 53% with those who started using them after the pandemic arose. 75% of those planning to engage ALSPs also reported that their workloads have increased during the pandemic.

Taken together, this data makes clear that most legal departments are planning to hit the accelerator on making ALSPs an integral part of their operating models in 2021. It’s another signal that, like in many sectors of the economy, actions taken to adapt during the pandemic will become standard operating procedures moving forward.

The legal industry has often been described as conservative and slow to change. That perception, too, is likely to change as we move into the Roaring 20s of legal innovation.