The 2nd Edition of GMT: The Podcast For Globally Minded Law Firm Leaders

Rob and Murray return for the second edition of the GMT podcast. More than at any time in the past, clients have an abundance of options for outsourcing legal work. Traditionally most, if not all, of the legal work sent out by corporate law departments went to law firms. And while this is still where most of this work goes, things are changing. Increasingly, alternative legal service providers (ALSPs) and even the Big Four accountancies are offering cost-effective legal solutions for clients of all stripes across the globe. Is this gloom and doom for the traditional law firm? No, but it does mean they need to continue to find ways to be competitive, clearly articulate their value proposition and be innovative in their approach to client service. We are seeing ALSPs and the Big Four growing in prominence on the global stage and increasingly encroaching on the US market. We will discuss a bit of the current state for ALSPs and how firms can defend their turf and increase market share in the face of this growing competition both at home and abroad.

Contact Rob and Murray:
Robert C. Bata, Founder and Principal, WarwickPlace Legal
Email: rbata@warwickplace.com

Murray M. Coffey, Founder and Principal, M Coffey
Email: murray@mcoffey.net

Transcript

Unknown: 0:00

Robert, welcome to GMT, the podcast for globally minded law firm leaders with your host. Robert Bata, principal of Warwick place legal and Murray Coffey, principal of M Coffey, between them, Rob and Murray have about three quarters of a century's experience working with some of the most notable law firms on the planet. This podcast is designed to help those law firm leaders tasked with growth make great decisions about whether and how to implement cross border expansion for their firms and what it takes to succeed. And now. Rob Bata

Rob Bata: 0:42

Hi Murray. We're back for the second session of our podcast. That's great to see you. Great to be with you, absolutely. And this time we're going to be talking about ALS fees, or alternative legal services providers and what they mean for the legal profession. We're not going to have a tremendous number of predictions or talk about a lot of philosophy, but just about how it all fits into what's happening with the legal industry around the world. Many alsps have been on the market for a long time now. They've shown extraordinary growth, and I think that it's time, if people have not paid attention to them, it's time for law firms to pay much more attention. Of course, many are because they have their own captive alsps. The one thing that I would like to say, and I'm going to turn it over to you, Murray, is that I gave a I gave a lecture to the Israel Bar Association about five years ago or so, and at that point, alsps were an $8.4 billion business. Today they're$21 billion business. So that that's a more than a 45% increase in terms of compounded annual growth rate, and that really does mean something. It's also true that law firms own some of their alsps, these captives, as they're known, they've increased 6% not 6% six times over the past five years. So it's something to think about and pay attention to.

Unknown: 2:26

Yeah, and, and, and I'll add before we start, we're both. We are both broadcasting from the great state of Texas on this I'm in Dallas, and Rob is in beautiful Austin, Texas on the sunny day February. Yeah, Rob. I mean, the, I think this started out as a conversation between you and I about the news a couple weeks back, about one of the first mover, or one of the early movers in the Alsp world, axiom starting up their own law firm. They're actually, they're actually creating their own law firm in Arizona. Arizona, as you know, is one of the jurisdictions that has set aside ABA Rule 5.4 which has historically mandated that ownership of law firms, law firms gonna cannot be non attorney ownership of law firms or participation in the profits. And Arizona set that aside. A couple of other jurisdictions are looking at it and experimenting with it, and certainly we've seen it in the in the cross border context with which I know you're going to talk about, kind of what, what that Alsp, what the en y, PwC, KPMG, legal departments, sort of what those look like in terms of competition, but axioms formed axiom advice and counsel in Arizona, they're focusing on some, you know, some, some really strong areas of the law, areas of the law that that require a great deal of efficiency and also require a significant amount of people power to, you know, get these, get these pushed over the over the finish line. And so it is an interesting development. We'll see what happens. They have plenty of resources, both in terms of funding and in terms of capabilities that they're going to be able to apply to this. Then we'll see where it goes. I just started, you know, they've got a they've they're, they're growing quickly, as all these alsps are and and I think it's going to be an interesting development for the law firms, as they're looking at this as its competition. And as you said, we've got some firms that have captive alsps, and we've all we're also seeing strategic partnerships. But I think that, I think that you know where we've seen some of this, some of this, these alternatives to law firms, if you will, pop up have been in initially, early on in the global context, and we're still seeing that. So maybe you can talk a little bit about sort what your experience has been. Rob with seeing some of these, this in the global context, and what it's done to the competition

Rob Bata: 4:57

and all. Murray, I think it would be interesting. Interesting, also for everybody's understanding, just to understand, really what these alsps do, because at this point, as sophisticated as some of them are, they're not just a replication of a law firm, correct. They bring a certain capability, which is case management and and legal process and so forth. So when we talk about axiom, for example, starting up a law firm that's a little bit different from the from the classic Alsp. Can you give a little bit more, put a little bit more flesh on what alsps actually do in terms of their function. They're not the ones that do enormous merge acquisitions, although they do handle much of if you will, the back office. Part of that, yeah,

Unknown: 5:53

there's, there's a, they participate pretty in some cases, in a fairly robust way, in due diligence. In the M and A's context. They also are, they also are, in some ways, sort of a legal outsourcing opportunity. So if you, for example, you have a senior member of your in house staff who is going out on leave of some kind, FMLA leave or medical leave of some kind, they can, they will. They're very quick to be able to to slot people in. They're also looking they're also able to build up a quickly, build up a team on a given project, and then reduce the numbers quickly after that particular initiative or project is over. And you know, they're what they're what they're doing is leveraging quite a bit of technology, quite a bit of process management, as as you stated earlier, Rob And there they are. They are also providing the attorneys and paraprofessionals who are working with them with highly flexible work arrangements. Sometimes it's fully remote, sometimes it's on site, sometimes it's at, you know, an axiom, or, you know, one of the LSPs offices. But it's very flexible. We've seen, we've seen also that it's been a place where people who have left the active practice and want to rejoin are finding that as a pathway into rejoining the practice, or just as a as a true new career path. So they're offering some interesting alternatives, both for the clients and for the practitioners.

Rob Bata: 7:27

And I think in many ways, they've also woken up a certain part of the legal profession. Part of it is kind of what you said, the outsourcing, the kind of lawyer on demand services. And there was actually one called lawyers on demand LOD, which was owned by the old Berlin Lady pesner firm, but after their merger with Brian cave, they sold it off. And I think that LOD is now functioning as a separate service. I think they also, and this is interesting from an international point of view, they also have, I think, promoted the growth of the so called distributed law firm, which is like the Fisher Broyles is of the US or the or Group W, or a keystone law in the UK, where lawyers who don't really want to be part of a firm basically Get a hot desk and are able to sell their services separately. And, you know, there's an aggregator involved who gets part of the fees. But I think that the growth of those kinds of practices was accelerated by the existence of alsps, which also performs some of these kinds of lawyer on demand services. I think that internationally, it's interesting, because certainly you look at the UK, having started with the 2007 Legal Services Act, is definitely the most liberal jurisdiction in the world in terms of permitting outside ownership of law firms. And that goes hand in hand in many ways, with ALS PDS, which are not necessarily owned by lawyers or run by lawyers, necessarily performing legal services or or being owned or buying into law firms. And you're saying a great deal of that internationally, not so much here in the United States and in my home state of New York, the State Bar has adamantly refused to consider anything like that. And and they're, they're sort of ABA rule, 5.4 to the to the 10th power, not interested in in too much progress, in that they gotta keep that, keep that garden walled? Well, walled. Yes, indeed. So the interesting thing about ASL piece also was, you know, how they fit in with other challenges to the legal profession, which is, as I said earlier, the big four. The Big Four, interestingly enough. Um, I saw this in a in a recent report, they are the slowest growers of alsps. So the the captive alsps of the big four have only grown by about 5% in the past five years. Part of that is also because the Big Four do perform all kinds of risk advisory and other kind of consulting services, so it's a mix. But it is quite interesting that in a survey that Altman Weil did a little while ago, it was shown that most law firms and Big Four, I should say most law firms feel that alsps Or the Big Four are not taking a lot of business away from them, so only about fewer than 10% of the respondents felt that business was being taken away. But when you ask them, Do you see them as a threat, right? Nearly 60% of the respondents said, Yes, we do. So

Unknown: 11:09

here too, the numbers, as we know, in the profession, sometimes are a little are a little slippery, right? And so if only 10% are saying, well, they're taking work away, but gosh, 50% are saying that they're, that they're a threat. I I wager that there's probably, so there's probably a little more we need to read into those numbers, but, but I think you're, you're absolutely right, and we've seen, we've already seen, you know, that that in in certain very restricted contexts, PwC and Deloitte have created, you know, strategic alliances. I think PwC was with fragamon, and Deloitte has an alliance with Barry Appleman Layton. And those are, those are immigration firms. They're very specific, very specific, very sort of narrow cast, if you will, of what they're, what they what they do, and what they bring to the market and their strategic relationships. But nonetheless, there they have a very strong, very strong relationship with with those, those larger organizations. So think we're seeing them nibble a little bit, you know, around the edges.

Rob Bata: 12:11

Yeah, I think certainly, as far as the states are concerned, but elsewhere, too, some of the strategy has been to take mature practices with declining profits. And that really characterizes immigration to some extent, some labor to labor and employment. So that's where they've been reaching out. But then in other jurisdictions, outside of the US you look at en y has been very, very active in Latin America. KPMG just brought in my friends at Zico law, which is was a regional firm based in Southeast Asia, offices in Singapore, Indonesia, the Philippines, uh, Vietnam, all over the place and and that not only helps the KPMG ability to put forth legal services, it also takes a regional firm and puts it on a global stage. So you can see that that's a win win for both sides, and that was a tremendous debt. That's more than a 250 lawyers in that acquisition. I don't think that that's going to be happening too much in Europe just yet. Deloitte clearly has announced that in the UK, they expect to double or triple their in house legal function, and that's going to mean, I'm sure some mergers or large group moves, but but the bottom line is that alsps, whether in a fledgling form, competing with law firms in The US or in a very distinctly aggressive and assertive form competing internationally, are a force to be reckoned with, and they're going beyond simply data management or lawyers on demand. So for example, the Vincent Mason firm recently brought in a provider that is a diversity a dei expert, and they have now set up basically a department within pens and masons that advises on dei issues. But having brought in this risk advisory consulting firm that's also a kind of Alsp. So, so you're beginning to see those kinds of things. The other thing that you're starting to see is what, when you what you need for alsps is kind of a practice management and financial systems background. Many of them don't provide that. So there's a whole other industry that's growing. I just came across a wonderful outfit in the Netherlands called it factor, which provides a dashboard to track profits on revenue. So I think that we're looking at internationally and in the US is. Is a kind of a web of new industries within the legal industry that will continue to sort of try to encircle traditional legal practice, and it's something to look out for and take into account in strategic planning,

Unknown: 15:19

yeah, but yeah, it's not all doom and gloom, as we know. I mean, I believe that law firms do have some distinct advantages. And there's some advantages that the alsps and the Big Four all, all provide, you know, kind of one neck to ring a variety of services, full cycle, etc, etc. I've heard those the way that they've been pitching their services. But, you know, law firms do have, do have a way to to compete and to be aware. And, you know, they've got to be aware that that's one of the that's one of the the issues is to make sure that that they are aware that the competition is out there and and, you know, I think that, you know, law firms spend a lot of time, and I've been on the on the preparation side and and development side of hundreds of RFP responses in my career. And, you know, law firms, still to this day, are leaning more into things like pedigree and features of the law firms, rather than, you know, the benefits and the process that they can bring to the to the table. And that's a you know, that is something that has to change, and is changing with many firms, they are starting to look at at, you know, how they are benefiting their clients? Also, I think that secondments could be a huge value add for firms, and when they do those, those they have to be very mindful about the secondments. Send your best folks. I know there's a risk that they might, that they might not return, but you know what? That's okay. If they don't return, they're generally speaking, going to stay at that perch that they're in, but make sure that when they're there, you're you're being very, very definitive about why that person is there. They're there to serve the client. They're there to develop relationships, and the firm should be supporting them in that. And I think that that's a fantastic way,

Rob Bata: 16:59

and that, I think raises an interesting question, because we want to relate this discussion to the DNA of this podcast, which I think, I think it relates very well. But I wonder if you could just say a few things before we run out of time about how you see the marketing department and the in house, the in the law firm in house executives role in terms of, if you will, educating law firm management about, on the one hand, yes, the threatened and the challenge, but on the other hand, the opportunity and and the importance of working with potentially developing their own captive alsps.

Unknown: 17:47

I think that that's an excellent point. You know, the folks who are in my shoes, many of them have some of those. Many of them have JDS or advanced degrees in in business or marketing, and they spend a significant amount of time analyzing markets. I've been analyzing this LSP market for over a decade and and I think that that being able to turn to your your in house professionals, and say, to help me understand what's going on out at the marketplace, more than just what you're going to hear from American lawyer, or maybe law 360 which are great sources, but they're not the only ones out there. There is, there is a whole, there's a whole world of research and market research that can be done. I also think that that the pricing professionals, the practice management professionals, should all be part of this discussion, because they will, they are also understanding what's going on out there. There's there's groups that are looking at nothing, but operations, you know, the clock. Clock is a great example the operations group. It's an international operations group. We've got professionals from all over the world getting together, talking about what's going on in house, outside, with other alsps as well. And so there's a lot of intelligence that that's going on out there. And I think that we can also encourage our firms to take a yes and approach to to this. We not be fearful if you hear that your client is talking about bringing in an Alsp to to be part of the be part of the overall service mix on an initiative or a case or a deal, and make sure that you're pointing out you know that how you can work with them together, and where your team is bringing in the in the value, not in a defensive way, but just in a very positive way, and finding ways to work with the

Rob Bata: 19:32

alsps. Sure that's it's not a zero sum game. It's not, no, it's not, not at all. Again, is the long term loss for the other way around. And I think it's also true that there's also room here for the outside consultant to work with the marketing people, to work with in house people, but also to be aware as certainly, I've tried to educate myself on what's out there, because it also creates opportunities for Law Firm. Firms for growth, for greater efficiency, and, of course, for greater profitability, which is what my clients are looking for, and that, you know, we hope to deliver. So I think that that's that's a great topic for us to sign off on, and I hope that was helpful

Unknown: 20:20

for our listeners. Well, we can't stop yet. Rob, we still have Bata best bet, which, which is, which is still my favorite part of all of our, all of our opportunities that we get to, get to be online together. So what is Bata is best bet? Well, behind me

Rob Bata: 20:41

right now, of course, there are many interesting areas. And you know, the last podcast I talked about Southeast Asia and particularly Singapore. To me, what's interesting right now is this isn't world beating, but it's popped up. And I think it's beginning to show up on people's screens, and that's the Middle East, and in particular, Saudi Arabia. Yeah, we've seen some movement there. It sounds like it, at least it was reported that Kirkland analysis looking to set up there. Just to give a little background, the Saudi government has has somewhat liberalized the role of foreign lawyers and what they can do, they are now able to form either, either have a branch office, or they can have a an actual practice there, where they can practice Saudi law. There's certain requirements, but this is all new. And of course, all of this is on the back of the Saudi vision, 2030 project, where they hope to generate a tremendous amount of foreign investment to kind of wean themselves off a little bit of the commodities based economy. And they've actually been doing a pretty good, a pretty good job of that. I'll just say very briefly that the plan was to to go from say, what? In one when this whole thing started, vision in 2030 they had about $43 billion worth of foreign direct investment that was not related to oil coming into the country. The goal is to get to a little over 100 billion, and they're already at at considerably more than at considerably more than they started out at their 267 billion. So it's working, and I think it's going to attract investment. And obviously there are certain glitches and issues to think about there, but I do think Saudi Arabia is kind of hot, and because of that, the rest of the Gulf will be too, and as Abu Dhabi and and Dubai will continue to attract interest. So that's that's my best for now. If

Unknown: 22:52

anybody out there has questions about about how to get into those markets, please give mister Bata a call. So thank you, everybody for tuning in, and if you have any questions, thoughts, ideas that you'd like to hear us address on this podcast, We're all ears and Rob as always. Great to Great to see you and and thanks again for for for coming up with a great idea to put this podcast together.

Rob Bata: 23:19

Likewise, it's a joint project, and real pleasure to work with you. Murray, oh goodbye. Everyone bye, everyone bye, you.