Looking to 2017: Jordan Furlong on the state of the legal marketplace
As we close out the year, it’s time to take a look at where the legal market is at, and where it might be going. I caught up with legal market analyst and principal of Law21.ca, Jordan Furlong, for what is becoming an annual year-end tradition, where we discuss key developments in the legal industry.
CBA National: Where do you see the legal market going in 2017?
Jordan Furlong: There are probably two parallel tracks of change. Within the legal profession, law firms and the legal community, my sense is that we will continue to see a slow but steady evolution of service provision. I’m not seeing any imminent sign of major change or extraordinary innovation. For the most part the profession’s leadership — law societies, courts and judges, attorneys general, and of course bar associations such as the CBA — generally seem to be positioning themselves in favour of cautious, careful progress towards a number of broadly stated goals. That seems to be consistent with what we’ve seen in the past few years.
N: And the second track?
JF: The other track is what’s happening outside the profession. Corporate counsel these days, especially in places like the U.S. and the UK, and increasingly here in Canada, are under tremendous pressure to restructure their entire approach to providing legal services. But budget growth is slowing or has been frozen. In many cases budgets are being cut back. They’re being told do more with less, so they are doing a couple things. They are in-sourcing some work. When you hire someone in-house, it’s obviously cheaper, but you also train someone in your culture and you immerse them in the objectives and the details of the business and its strategic goals and, so it’s a win-win all around. If they ever send work out of the department, they’ll look for options that are less expensive than law firms but can still deliver the goods. So they’re looking perhaps at some of these select work lawyer agencies or outside in-house counsel groups. Axiom of course is one. Caravel Law is another.
N: Are there any other game changers out there?
JF: The other big trend is the rise or the legal operations professional, or the legal ops department. This is a major deal in the U.S., and it’s coming here to Canada eventually. They might be lawyers; often they’re not. What makes these people really interesting is that they’re people who are coming into the traditional law department/law firm relationship, but without the baggage, without the cultural assumptions and practice history that lawyers bring to it. In a lot of ways law departments, even fairly enlightened law departments, still tend to resemble and work a lot like law firm. And the job of the legal ops professional is to help the law department become much more like every other department within the corporation. These are professionals trained in data analysis and knowledge management and process improvement and they’re tasked with helping in-house law departments build systems and processes and protocols that will allow work to be done within the law department much more efficiently, at a higher level of reliability. That will be a radical change. I don’t know that 2017 is the year we’ll see a real tipping point on that in Canada, but before the end of this decade we will definitely see a completely reconfigured corporate or institutional purchaser of legal services, and that will have a significant impact on law firms.
N: What about on the regulatory front?
JF: The one major change I do see coming from within the profession — and maybe it’s not fully appreciated by the profession at large — is the continued progress towards entity regulation within Canada. This is the idea that in addition to individual lawyers continuing to be held accountable for their competence and ethical behaviour, now law firms and legal service providers, writ large and in a corporate sense, also will be required to demonstrate their adherence to a set of ethical principles and practices. We’ve seen it in Australia and in England and Wales, and I think that we will see it in Canada before too long. Nova Scotia continues to be, as far as I can tell, out ahead of the pack in this regard. But even Ontario has made some progress in that direction. I haven’t seen entity regulation generating nearly as much resistance as non-lawyer ownership of law firms and [alternative business structures or ABS] did. Partly, I suspect, this is because non-lawyer ownership produces a level of visceral response that entity regulation does not. Also I don’t know that many lawyers fully appreciate just what a change entity regulation is going to bring about. The whole ABS non-lawyer ownership thing, had it passed, would only have affected a handful of lawyers and law firms and legal service entities within Canada. Entity regulation is going to affect everybody.
N: And it opens the door to non-lawyer ownership.
JF: Yes, in a way it’s the ethical regulatory precondition to allowing non-lawyer ownership of law firms.
N: Changing topics, how aggressively are the big accounting consultancies moving into the legal marketplace?
JF: I think they want to do more than just nibble at the edges. They want to carve a deep swath into the legal services market, certainly judging from what you’re seeing from the big four in Europe and in Great Britain. One thing that was evident in 2016 was a rash of high-end lawyer hiring by the big accounting consultancies away from major law firms, and the building out of much more robust legal functions within these departments. There’s still a tendency for some lawyers to think, “Well those big firms they just do a little bit of tax.” I don’t think that’s true anymore. They’re delivering services in business and corporate law, in employment and labour, in immigration certainly, in intellectual property, in addition to tax. At this point, they’re not interested in going after complex high-stakes work. I think they’re more interested in what I call “run the company work” — day-to-day straightforward stuff that’s got to happen all the time. This is not just what you would call commodity work or drudge work; this is bread and butter stuff, the kind of thing that keeps companies going and keeps legal departments going and the accountancies are set up perfectly for that. Unlike law firms, they are much more systematized, much more process heavy. And I think law firms over the course of the coming years will start to see this happen in earnest. We’re going to see the “run the company work” move out, and law firms will increasingly become high-end specialized boutiques for complex high-stakes work. Now, are the accountancies and the consultancies going to stay out of that work forever? Probably not, because why would they, right? It’s obviously very lucrative work.
N: What does the emergence of third-party litigation funding tell you about the legal industry?
JF: It’s another sign that lawyers are losing control over the legal services marketplace. That’s not to say that lawyers will lose all control, but it is not going to stay at 100 per cent, and lawyers are very much accustomed to that. The ban on non-lawyer provision of legal services has generated a sense of comfort that flows over into a sense of entitlement by lawyers to say, “this is our territory.” And we’ve talked about the rise of accounting firms; we’ve talked about the encroachment of procurement and legal operations on law departments; we’ve talked about software companies and machine learning products as examples of, again, people who aren’t lawyers, companies that aren’t law firms, new technologies, exerting greater and greater influence within this market. And litigation funding is another example of that.
N: But the emergence of third party litigation funders could also be a boon for lawyers, no?
JF: Arguably, as are all these developments we are talking about. One of the reasons [to argue] in favour of allowing non-lawyer service providers into the market is that it expands the market incredibly. There are many surveys out there showing that lawyers only serve about 15-20 percent of the total universe of potential legal buyers. Expanding that market, and opening the doors to more people to come into this market is only going to be beneficial to lawyers. In terms of litigation funding, I’m sure there are many litigation firms that are all for it because it funders bring fuel to the fire. But you can also make a strong case that the long-term impact of using an existing business as a financial vehicle for investment and profit has something wrong with it fundamentally and on a moral level. It also doesn’t produce the kind of social outcomes that we want to see. So there are two bottom lines on that. One, lawyer dominance of this market is done and, number two, legal services are amenable to systemization and to financialization. I don’t think there is any question about that. The question is how do we manage this in the right way. How do we do it in ways that advance the goals of the legal system?